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1 LIBRARY OF CONGRESS. | 

b\ 9—165 fe? 



MUNICIPAL OWNERSHIP 



AND OPERATION 



OF 



PUBLIC UTILITIES 



IN 



NEW YORK CITY 



BY 



SAMUEL SEABURY, 

One of the Justices of the City Court of the City of New York. 









CONGRESS 
TWO 

AUG 3' 1905 I 
Oopyngnt fcnirv * 




Copyright, 1905* b y 
Municipal Ownership Publishing Company. 



MUNICIPAL OWNERSHIP AND OPERATION 

OF PUBLIC UTILITIES IN NEW 

YORK CITY. 

v 

TABLE OF CONTENTS. 

PAGE 

Preface 7-9 

Chapter I — Public Franchises 11 

Definitions and Nature 11 

History of Franchises 12 

Streets, Their Legal Character 15 

Chapter II — The Lighting Monopoly 17 

The Boroughs of Manhattan and The Bronx. . 17 

The Gas Companies 17 

The Electric Companies 25 

The Borough of Brooklyn 28 

The Gas Companies 28 

The Electric Companies 29 

The Boroughs of Queens and Richmond 31 

The Remsen Bill 31 

Some of the Methods and Practices of the 

Lighting Trust 35 

Chapter III — The Street Railway Monopoly 48 

Railroads in Manhattan and The Bronx 48 

The Interborough Rapid Transit Company. . . 49 

The New York City Railroad Company 50 



4 TABLE OF CONTENTS. 

PAGE 

The Brooklyn Rapid Transit Company 56 

Railroads in the Borough of Queens 58 

Railroads in the Borough of Richmond 59 

Chapter IV — The Rapid Transit Commission. .. . 61 

History, Nature and Constitution 61 

Different Methods in which the Board May 

Grant Franchises 68 

Under Section 34 — Upon City's Money 68 

Under Section 32 — At Expense of Lessee 71 

Which Method is Most Beneficial to the City ? . 75 
Franchises Which the Board Has Already 

Granted k 80 

The Manhattan-Bronx Franchise 81 

The Brooklyn-Manhattan Franchise 88 

The Pennsylvania Franchise 89 

The New York and Jersey Franchise 93 

The Hudson and Manhattan Franchise 99 

Pipe Galleries 100 

Policy and Methods of the Board 105 

Chapter V — Bridges 117 

"Bridge Terminals" 118 

The Brooklyn Bridge 122 

The Williamsburg Bridge 126 

Chapter VI — The Functions of Government 128 

Chapter VII — Regulation and Control as a Rem- 

edy 13 



2 



Chapter VIII — Arguments in Favor of Public 

Ownership and Operation 139 



TABLE OF CONTENTS. 5 

PAGE 

Excessive Charges — Power to Tax 139 

Over-capitalization 141 

Poor Service 143 

Fraud and Corruption 143 

Antagonism Between Public and Private Inter- 
ests Under Private Operation 145 

Economy Under Public Operation 145 

Experience Shows Benefits of Public Operation 146 

Benefits of Co-ordination 150 

Relief to Taxpayers 151 

Lower Rates and Increased Business 157 

Characteristics of Private Operation 158 

Improved Condition of Labor 159 

Objections to Municipal Ownership and Oper- 
ation 160 

Chapter IX — Legal Methods by Which the City 
May Acquire and Operate Its Public Uni- 
ties 168 

City's Powers — Home Rule 168 

Municipal as Distinguished from Public Plants. 171 

City's Rights When Franchises Have Expired. 173 

The Lighting Situation 175 

The Stevens' Committee Bills 177 

The Street Railway Situation 181 

Methods of Securing Ownership and Operation 186 

Pledging City's Credit by Sale of Bonds 187 

What is a City Purpose? 188 

The Debt Limit 190 

Issuing Public Service Certificates 193 

Franchises Should Be Forfeited for Non-User. 194 

A Practical Program 195 



PREFACE. 

The purpose of this pamphlet is to describe the nature 
and extent of some of the public franchises owned in the 
streets of New York City by private corporations, to 
point out the abuses existing under their present man- 
agement and to aid in arriving at just conclusions in 
reference to them. The safety and welfare of all the 
people of the city are dependent upon the manner in which 
its lighting and street railroad franchises are managed 
and operated. The majority of citizens are more inter- 
ested in securing a satisfactory administration of these 
services than they are in a discussion of the theoretical 
advantages of public over private operation. Questions in 
relation to the lighting and street railway franchises are 
complicated by reason of the fact that the public possess 
very little accurate information in reference to them, and 
their legal and technical aspects are such as to deter lay- 
men from making a thorough investigation. Without a 
clear knowledge as to the nature and extent of these fran- 
chises and their legal status many prudently hesitate to 
advocate a change in our economic policy in reference to 
them. The purpose which I have tried to accomplish in 
these pages is to state the true facts in reference to these 
franchises. Having done this I have considered some of 
the alleged remedies which have been proposed for pres- 
ent abuses. Having shown the inadequacy of the rem- 
edies suggested, I have endeavored to explain the remedy 
which I conceive to be the true one. Nothing short of 
the ownership and operation of these public utilities by 



8 PREFACE. 

the municipality can remedy the existing evils. The 
question of the acquirement and operation by the city of 
the lighting and street railroad franchises is a great busi- 
ness problem and is not free from difficulty. It is a ques- 
tion, however, which must be solved and the longer we 
postpone the attempt to solve it the more dif- 
ficult and complicated will it become. It is a sub- 
ject which is entitled to the calm and impartial con- 
sideration of every citizen. It must not be ap- 
proached in any narrow spirit of partisanship. A can- 
did examination of the facts and the arguments for and 
against municipal ownership must precede proper action 
upon the subject. Records and law-books must be con- 
sulted to ascertain the nature and origin of the privileges 
which private corporations now claim the right to exer- 
cise in our public streets. Political and economic con- 
siderations must be weighed in determining whether 
municipal ownership and operation of these public util- 
ities is to be preferred over private ownership and opera- 
tion, and, lastly, the legal methods by which such fran- 
chises may be acquired and operated must be considered 
and the effect of such ownership and operation upon the 
city's finances and credit must be determined. Nothing 
can be gained toward promoting the success of the move- 
ment by demagogic appeals to passions and prejudices. 
Nor does the cause of municipal ownership and operation 
need to depend upon such appeals. It is essentially a 
business matter, the advantages of which are capable 
of being demonstrated to hard-headed business men. 
Until these various aspects of the question are appreci- 
ated and a clear cut and practical plan proposed by which 
their acquirement and operation can be secured, there is 



PREFACE. 9 

little probability or hope of the adoption of municipal 
ownership and operation. When such a practical plan is 
devised and the question thoroughly understood, the 
People will take the political action through which alone 
they can recover their own franchises and derive the bene- 
fits which will accrue from their public ownership and 
operation. To aid in bringing about a clearer understand- 
ing of this question in its relation to the City of New 
York and to hasten the establishment of municipal owner- 
ship and operation of its public utilities is the purpose of 
the following discussion. 

In preparing this pamphlet I have availed myself freely 
of the following volumes : "The City for the People," by 
Prof. Parsons ; "Municipal Monopolies," edited by Prof. 
Bemis ; "The History of Public Franchises of New York 
City," by Mr. Gustavus Myers, and the excellent bulle- 
tins in relation to rapid transit prepared and published by 
the Municipal Art Society of New York. 

July ist, 1905. 
New York City. 



CHAPTER I. 

Public Franchises. 

Definitions and Nature. 

Government ownership and operation of public utilities 
relates to the performance of those services which in their 
nature are natural monopolies and which can only be 
rendered by private corporations when a franchise has 
been granted from the government to the corporation 
performing them. At the outset it is necessary clearly 
to understand what a franchise is. A franchise is a 
special privilege conferred by the government on indi- 
viduals or corporations, and which does not belong to 
citizens of the country generally by common right. 
(Smith vs. The Mayor, 68 N. Y., 552, 555.) 

A distinction exists between the franchise of the right 
to be a corporation and the other franchises which are 
conferred by the sovereign power upon corporations. The 
right to be a corporation is itself a separate, distinct and 
independent franchise, complete within itself, and a cor- 
poration having been created, enjoying this franchise, 
may receive a grant of other distinct and independent 
franchises. These latter franchises are no part of the 
essential franchise of the right to be a corporation, but 
are given to the corporation in addition. The franchise 
of the right to be a corporation is a franchise which all 
corporations enjoy and will not be discussed in these 
pages. Those franchises which permit corporations to 
perform certain public services, are called public fran- 
chises. 

Public franchises are those which are conferred upon 



12 PUBLIC FRANCHISES. 

individuals or corporations in addition to the original 
franchise of the right to be a corporation giving to the 
grantee of the franchise the right to run cars, to collect 
fares, to appropriate earth for the bed of a railroad, to 
lay rails, pipes, mains, conduits and tanks, or permission 
to exercise the right of eminent domain or enjoy a right 
of way through streets or highways, or to perform some 
quasi-public service. 

Those corporations which are charged with the per- 
formance of some quasi-public duty, for the discharge of 
which the use of public thoroughfares is essential, pos- 
sess public franchises. 

Manifestly there is a perfectly clear and evident dis- 
tinction between the attempt of the government to regu- 
late the business of an individual or private corporation, 
possessing no public franchise and being under no 
quasi-public duty, and the attempt to regulate the man- 
ner in which public franchises are operated and public 
duties are performed. The movement for municipal 
ownership and operation of public utilities relates only to 
PUBLIC FRANCHISES and does not, therefore, in- 
volve the slightest interference with private business or 
private rights. 

History of Franchises. 

The creation of corporations enjoying franchise privi- 
leges was known to and sanctioned by the laws of Greece 
and Rome. In early English law the right to grant cor- 
porate powers or other franchises was the prerogative of 
the sovereign. At first royal prerogative was unre- 
strained, but with the growth of the power of Parlia- 
ment, restrictions and limitations were imposed upon it. 



PUBLIC FRANCHISES. 13 

In America in Colonial times both the Dutch and English 
governments guarded jealously the right to confer fran- 
chises on natural persons or corporations. In the early 
history of the United States the legislatures of the several 
States possessed the power and had the right to grant 
charters of incorporation or other franchises. These 
corporate and franchise rights were usually granted by 
special act of the legislature. 

The Dartmouth College case decided that these cor- 
porate and franchise grants were contracts, and were 
within the protection of the provisions of the federal con- 
stitution, which prohibits the State from passing laws 
which impair the obligations of a contract. The case 
went further and held that those grants made by the 
English government prior to the Revolution were within 
the protection of these constitutional provisions. 

State constitutional provisions very generally restrict 
legislative bodies to granting corporate powers and fran- 
chises only under general laws. Municipal corporations 
or cities usually by virtue of their interest in the streets 
and public highways, possess the right to grant certain 
public franchises and to regulate and control their opera- 
tion. The franchises granted by municipal corporations 
are restricted not only within the limits of the municipal 
charter, but are further restricted by the terms of the 
franchise grant from the municipality. The importance 
of these municipal franchises has greatly increased with 
the growth and development of our modern city life. At 
first these franchises were usually granted to individuals. 
Later many private corporations were organized for the 
purpose of operating and enjoying the profit arising from 
their ownership and operation. 



14 



PUBLIC FRANCHISES. 



The following table shows the dates when corporations 
were organized for operating the most important of these 
franchises in the older States : 



STATES 


Water Co's. 


Gas Co's. 


Railway 
Co's. 


Telegraph 
Co's. 


Alabama 


1820 


1854 


1858 


1848 




Connecticut 


1849 


1857 


1859 


1837 




Delaware 


1804 


1835 


1859 








Louisiana 


1833 












Massachusetts 


1795 


J 822 


1853 


1846 




Maine 




1849 


i860 








Mississippi 


1819 












New Jersey 


1799 








Ohio 


1810 


i«37 




1849 




South Carolina 




1846 


i860 








Tennessee 


1809 


1849 










Virginia 


1832 




1828 


1847 


District of Columbia 


1814 


1848 







Compiled from Foote & Everett's" "Law of Incorporated Companies," 
etc., Vol. 1, pp. 131-134. 

The almost invariable steps in the development of pub- 
lic franchises have been, first — individual enjoyment of 
franchises; second — corporate enjoyment; third — muni- 
cipal regulation and control ; fourth — municipal or public 
ownership, and fifth — public or municipal operation. 
The fifth and last stage has not as yet been generally 
adopted, but it is unquestionably the next step in the 
evolution of public franchises. 



public franchises. 15 

Streets — Their Legal Character. 

These public franchises are granted mainly in streets 
or thoroughfares. It becomes necessary, therefore, to 
appreciate the legal character of a street or highway. 
The legal character of all streets and highways is no 
longer open to discussion. Our modern streets, road? 
and highways constitute the People's Highway, as at 
common law they were regarded as belonging to the 
King. The "King's Highway" is defined in English law 
to be a public passage for the King and his subjects, and 
from thence its name is derived; and the test whether a 
road is entitled to that designation is to inquire whether 
it be common to all the people. 

In the case of Davis v. The Mayor of New York (14 
N. Y., 506, 515), Chief Justice Denio said: 

"The object of a highway or street is to afiford to 
every citizen an opportunity to pass on foot or with his 
horses and carriages from one locality to another, and it 
is essential to the legal idea of a street that it should be 
common to all." 

The same idea was expressed in a case decided in Indi- 
ana, where the Court declared that "Public highways be- 
long, from side to side and end to end, to the public." 
(State v. Berdetta, 73 Ind., 193.) The right to pass upon 
the surface of the streets, or to pass over the streets upon 
an elevated structure, or to pass under the streets through 
subways, are rights in and to the highways. These uses 
of public streets in no way impair their character as pub- 
lic highways. They serve merely to increase their useful- 
ness and promote their efficiency. 

In the Boroughs of Manhattan and the Bronx, in the 



l6 PUBLIC FRANCHISES. 

territory which was formerly the old City of New York, 
the city owns the fee of the streets. In the other bor- 
oughs, while the city owns the right of way in the high- 
ways, it does not own the fee, except where it may have 
specially acquired it. The abutting owners upon each 
side of the street own the fee to the centre of the high- 
way. In the construction of subway railroads this dis- 
tinction is important. When the city itself owns the fee 
it is not compelled to make compensation to abutting 
owners, but where the city does not own the fee the sub- 
surface of the street can only be taken upon payment of 
just compensation to abutting owners. 



THE LIGHTING MONOPOLY. 17 



CHAPTER II. 

The Lighting Monopoly, 

The interests of the Lighting Monopoly are two- fold: 
the branch of the monoply which furnishes Gas, and the 
branch which controls the Electric supply. The origin of 
the companies controlling both of these branches, and the 
results of the monopoly which they enjoy are worthy of 
consideration. From an account of each it will be ap- 
parent that their record has been one of extortion. Their 
privileges were conceived in fraud and political corruption 
and throughout their existence they have been a constant 
source of temptation to corrupt officials. Both of these 
branches exist in violation of the law, as both enjoy 
absolute monopolies in necessaries of life. Both have 
violated the law of the State, both have made false 
reports to avoid the payment of their just taxes, and both 
have entered into a close and friendly alliance with public 
officers whose duty required that they should protect the 
public from extortion. 

THE BOROUGHS OF MANHATTAN AND THE 

BRONX. 

The Gas Companies. 

Prior to 1880, competition existed among the gas com- 
panies of New York City. Since that time the companies 
have appreciated that monopoly was more profitable to 
their interests than competition. At present all the 
gas companies operating in the Boroughs of Manhattan 



l8 THE LIGHTING MONOPOLY. 

and The Bronx are controlled by or merged in the Con- 
solidated Gas Company. The monopoly enjoyed by this 
company is absolute. Most of the very valuable fran- 
chises enjoyed by it have been obtained without any con- 
sideration being paid to the people. Notwithstanding 
the fact that their privileges were obtained free of charge, 
the rates exacted from the consumer by the gas companies 
have always been excessive and extortionate. As a result 
of the operation of the Tweed Ring and the contracts 
made by it for the city, the validity of which was sus- 
tained by the courts, public indignation was aroused and 
a petition was presented to the Board of Assistant Alder- 
men, asking them to petition the Legislature to confer 
power upon the city to supply its citizens with gas at cost. 
This suggestion was referred to a committee and was 
there smothered. In 1885 the State Senate appointed a 
Legislative Investigating Committee, which was known as 
the Thomas Committee. This comittee took a great deal 
of testimony and disclosed many interesting facts. Their 
report showed watering of stock, evasion of taxes, enor- 
mous profits and extortionate rates charged to the con- 
sumer. Down to this time the Gas Companies were fur- 
nishing gas to the consumer for $2.50 and $2.25 per 
thousand, although the investigation of 1885 made it 
perfectly clear that at least one-half of this price was 
clear profit to the company. 

In 1883 the average price to the consumer was $2.25. 
In 1885, the year of the investigation, the companies re- 
duced the price to $1.75 and in the following year it was 
reduced by act of the Legislature to $1.25. This price 
continued to prevail until 1897, when it was again reduced 
by law to $1.00 per thousand. The alleged benefits which 



THE LIGHTING MONOPOLY. 19 

the people are supposed to have derived from this reduc- 
tion have been almost wholly nominal, as poorer gas has 
been furnished under higher pressure with every nominal 
reduction in the rate. 

It is perfectly evident from these nominal reductions 
that the price charged for gas bears no relation what- 
ever to the cost of its production. 

The report of the Thomas Committee in 1885 did 
good, however, because it supplied a great deal of in- 
formation in reference to the dark and crooked ways 
of the companies. The companies appreciated fully the 
dangerous character of this report and copies of the 
report became very scarce. Prof. Bemis says that, "ac- 
cording to the belief of many, the companies bought 
and burned all the copies on the market and hushed up 
the report most speedily." (Municipal Gas, p. 70.) 

The parent company of all the companies which are 
now merged in or controlled by the Consolidated Gas 
Company was the New York Gas Company, which was 
formed in 1823 with $1,000,000 capital. The Board of 
Aldermen granted to this company a thirty year exclu- 
sive franchise to lay pipes in the streets south of Grand 
Street. The franchise was given away, as the city re- 
ceived absolutely no compensation. The company 
charged the consumer $10 per thousand cubic feet for 
gas. In 1833 the Manhattan Gas Light Company was 
given a franchise to lay pipes in all streets, avenues and 
public places north of Grand Street and in part of Canal 
Street from river to river for twenty years. (Myers' "His- 
tory of Franchises," p. 93.) No compensation of any 
kind was paid to the city for this franchise. 

From this time on the rich "graft" which these fran- 



20 THE LIGHTING MONOPOLY. 

chises yielded attracted competitors who were anxious 
to share in the harvest. From time to time the Harlem 
Gas Light Company, the Metropolitan Gas Light Com- 
pany, the New York Gas Light Company, the Anthracite 
Gas Lighting and Heating Company and the Union Gas 
Light Company obtained franchises or sold those which 
they had to others. Thus the New York Anthracite Gas 
Lighting and Heating Company did not develop or 
operate its franchises for eight years. Having obtained 
them it held them to sell at a profit and in 1871 it sold 
its franchises to the Union Gas Light Company, ( Myers' 
"History of Franchises/' p. 96.) 

It had no lawful right or authority to sell its fran- 
chises to the Union Gas Light Company and the latter 
acquired no valid title. In 1876 the Knickerbocker Gas 
Light Company came into existence. It acquired its 
alleged franchise rights by purchase from the owners of 
the Union Gas Light Company, which had purchased 
illegally the franchises of the New York Anthracite 
Gas Lighting and Heating Company. This company 
paid its president the moderate sum of $500,000 a year 
salary. (Myers' "History of Franchises," p. 98.) Im- 
mediately prior to 1880 the Gas Companies engaged 
in a bitter war upon one another. It was not long, how- 
ever, before they realized that their interests would be 
best promoted by terminating the war and maintaining 
peaceful relations between themselves and directing all 
their energies against the community. Up to 1882 no 
Gas Company had paid a single cent by way of compen- 
sation to the city for its franchises. In that' year the 
Equitable Gas Light Company was formed for the pur- 
pose of competing with the pool which had been formed 



THE LIGHTING MONOPOLY. 21 

by the other gas companies. In its franchise this com- 
pany agreed to pay 20 cents for every lineal foot of 
trench opened for mains and to furnish gas lamps to 
the city at not more than $112 each a year and to supply 
gas to city buildings at a rate not to exceed $1.50 per 
thousand cubic feet and to consumers at not less than 
$1.75. Operation was commenced in 1884 and in the 
territory within which the Equitable operated the price 
of gas was reduced by the other companies to $1.75, but 
in all other sections of the city the companies kept the 
price at $2.25. (Myers' "History of Franchises," p. 99.) 
In 1884 the Consolidated Gas Company was formed. 
It was a mere "holding company/' It possessed no pub- 
lic franchise, but held the stock of and, therefore, 
controlled the following named companies : New York, 
Manhattan, Mutual, Harlem, Metropolitan, Municipal 
and Knickerbocker Gas Light Companies. It was orig- 
inally capitalized for $39,078,000, of which $35,430,060 
was issued for acquisition of the properties and fran- 
chises of the constituent companies, subject to certain 
indebtedness. The Consolidated Gas Company did not 
include in its pool the Mutual or the Standard Gas Com- 
panies. The Mutual agreed to enter the combination, 
but was prohibited by a provision in its charter which 
made its directors liable for a criminal offense if they 
voted for such combination. The Standard was also 
prohibited by its charter' from consolidating. The Gas 
Trust represented by the Consolidated Company cir- 
cumvented the law by buying the stock of these two 
companies and thus while avoiding responsibility for a 
criminal violation of the law accomplished its purpose 
and reaped the benefits that came from violating the law. 



22 THE LIGHTING MONOPOLY. 

The capitalization of the Consolidated has since been 
raised to $100,000,000, of which $80,000,000 has been 
issued. 

The New Amsterdam Gas Company was formed in 
1898 and is a consolidation of the following companies: 

Equitable Gas Light Company of New York, incor- 
porated in 1882; 

New York and East River Gas Company, incorpor- 
ated in 1893 ; and 

The New Amsterdam Gas Company, which was incor- 
porated in 1897. 

The Equitable Gas Light Company was authorized 
to operate for thirty years by an ordinance passed De- 
cember 23d, 1876, unless the permission was sooner 
revoked for breach of conditions. The ordinance also 
provided that this company should not assign its rights 
without the consent of the Mayor, Comptroller, and Com- 
missioner of Public Works, or "make or enter into any 
combination, arrangement or agreement with any other 
company or companies/' and distinctly provided that 
"in the event of their so doing this permission shall 
ipso facto become null and void." 

The New York and East River Gas Company ac- 
quired the capital stock of the East River Gas Com- 
pany of Long Island City, amounting to $1,000,000. 
The East River Gas Company of Long Island City was 
incorporated in 1890 and in 1892 was authorized to sup- 
ply gas and electricity in the City of New York, and 
for that purpose to lay and maintain conductors, mains 
and pipes under the streets of the city and under the 
East River and across any intervening land belonging 
to the city or to private persons. To carry out its pur- 



THE LIGHTING MONOPOLY. 23 

pose it was empowered to acquire property by condem- 
nation proceedings. Under this act the company built a 
tunnel under the East River and also under Blackwell's 
Island. In reference to this company the report of the 
Stevens Committee says : 

"It does not appear that it acquired any rights for 
the building of its tunnel either by condemnation pro- 
ceedings or by agreement or purchase." 

The original New Amsterdam Gas Company acquired 
no property prior to its consolidation. 

In reference to the franchise of the New Amsterdam 
Gas Company the report of the Stevens Committee says : 

"The New Amsterdam Gas Company claims no fran- 
chise in the Boroughs of Manhattan and The Bronx 
other than that granted to the Equitable Gas Light 
Company for the term and upon the conditions stated. 
It is a serious question whether, without the consent of 
the city authorities, the franchises of the latter company 
could be transferred by consolidation to the New Am- 
sterdam Gas Company, but, assuming the franchise to 
have been lawfully transferred, the further question is 
presented whether the present relations between the 
New Amsterdam Gas Company and the Consolidated 
Gas Company do not constitute a breach of the condi- 
tions of the franchise rendering it subject to forfeiture. 

"The New Amsterdam Gas Company, however, con- 
trols the East River Gas Company of Long Island City, 
which still holds the franchise granted under the Act 
of 1892." 

It is interesting to note that nearly all the shares of 
stock of the New Amsterdam Gas Company are owned 
by the Consolidated Gas Company. Thus the Consoli- 



24 THE LIGHTING MONOPOLY. 

dated owns 89,775 preferred shares out of a total of 
90,000 preferred shares and 121,095 common shares out 
of a total of 121,650 common shares of the New Amster- 
dam Company. 

It is exceedingly doubtful if any of the companies 
owned by the Consolidated possess any franchises at all 
at the present time. The status of the franchises under 
which the Consolidated is operating in Manhattan 
and The Bronx is well summed up in the following ex- 
tract from the report of the Stevens Committee : 

"But it is doubtful whether the Consolidated Gas Com- 
pany has any extensive rights in the City of New York. 
It appears that no franchise other than the franchise 
to be a corporation has been granted to the Consolidated 
Gas Company, and it would seem that several of the 
constituent companies have expired or will soon expire. 
The grant to the New York Gas Light Company was 
made May 12th, 1823, for twenty years. The grant to 
the Manhattan Gas Light Company was made May 5th, 
1848, for twenty years. The grant to the Metropolitan 
Gas Light Company was made Dec. 22d, 1858, for thirty 
years. The grant to the Municipal Gas Light Company 
under ordinance of December 23d, 1876, apparently will 
expire in 1907. The grant to the Anthracite Lighting 
and Heating Company, made September 17th, 1863, 
and claimed by the Knickerbocker Gas Light Company, 
apparently will expire in 1913. The grant to the Har- 
lem Gas Light Company, which was incorporated in 1855 
for a period of fifty years, was made April 25th, 1855, 
and contained no time limitation. The city, however, 
reserved the right "to purchase at any time from the 
said company all the materials, pipes, fixtures, buildings 



THE LIGHTING MONOPOLY. 2$ 

and all and singular all the personal and real property 
owned by said company by paying to said company the 
cost of the same and ten per cent, over and above said 
cost/ No evidence has been furnished of any other fran- 
chise granted to any other constituent company or 
claimed by the Consolidated Company. * * * Suf- 
ficient facts appear, however, to make it extremely 
doubtful whether the Consolidated Gas Company has 
any rights in the streets of considerable value." 

The Knickerbocker Gas Light Company possesses 
merely a receiver's title to the assets of the Union Gas 
Light Company, which were illegally acquired. 

The Astoria Gas Grab, which failed to become a law 
in 1899, attempted to authorize the Colonial Light, 
Heat and Power Company to build a tunnel under the 
East River to connect the waters on Long Island with 
pipes on the New York side, and to give to the company 
sixteen acres of land under water at Astoria and to con- 
fer many other valuable franchises. Notwithstanding 
the failure of the Grab Bill to become a law, Mr. Myers 
has pointed out ("History of Franchises/' p. 105) that 

"In December, 1899, the State Land Board sold the 
sixteen acres of land under water at Astoria for $3500, 
which the Corporation Counsel asserts are worth 
$3,ooo,ooo. ,, 

The Electric Companies. 

The Edison Electric Illuminating Company obtained 
the first electric lighting franchise in 1881. It was au- 
thorized to lay wires, tubes and conductors for supply- 
ing electricity in all the city streets. Under the terms of 
the franchise it was obligated to pay the city one cent per 



26 THE LIGHTING MONOPOLY. 

lineal foot of the streets occupied. The resolution grant- 
ing the franchise was vetoed by Mayor Grace upon the 
ground that the compensation provided for was inade- 
quate, but it was passed over the Mayor's veto. (Myers' 
"History of Franchises/' p. 184.) 

Subsequent to this many new companies were formed 
and franchises were granted to them. These franchises 
were all acquired by the New York Gas and Electric 
Light, Heat and Power Company. 

In 1901 the New York Edison Company was formed. 
This company possesses no franchise but is merely a 
"holding company." It acquired all the rights and 
privileges of the old Edison Electric Illuminating Com- 
pany and the New York Gas and Electric Light, Heat 
and Power Company. The New York Edison Company 
is to the electric lighting industry what the Consolidated 
Gas Company is to the gas industry. The capital stock 
of the New York Edison Company is $45,200,000, which 
is the aggregate amount of the capital stock of the two 
constituent companies. This sum represents gross over- 
capitalization. Bonds were issued by the company until 
its total outstanding obligations aggregated $40,232,- 
883.80. Witnesses on behalf of the company before the 
Stevens Committee endeavored to make it appear that 
the company owned valuable patents, trade prospects and 
equities, but when these nebulous assets were analyzed it 
was found that a majority of its patents had expired and 
that all of these items did not exceed $3,159,000. Not- 
withstanding the enormous and fraudulent over-capitali- 
zation of the company, its profits were so large that it 
paid $2,000,000 interest on its inflated bonded debt and 
accumulated a surplus of $8,000,000. No dividends were 



THE LIGHTING MONOPOLY. 2>] 

paid upon its stock, nearly all of which, it is interesting to 
note, is held by the Consolidated Gas Company. 

The Consolidated Telegraph and Electrical Subway 
Company operates ducts for high tension wires and the 
Empire City Subway Company operates the low tension 
wire conduits. Both of these last-mentioned companies 
are owned by the Edison Company, although nominally 
they keep a separate legal existence. It appeared from 
the testimony given before the Stevens Committee that 
the Edison Company pays for building and repairing its 
ducts under the city streets, pays the taxes of these com- 
panies and all their other expenses. Neither of these 
subway companies have paid the city the amounts due 
under their contracts and both have been guilty of acts 
working a forfeiture of their franchises. 

The cost of electric current averages about 3.66 cents 
per kilowatt hour in Manhattan and The Bronx. Add to 
this all incidental expenses which the company incurs, 
whether necessary or unnecessary, including the payment 
of interest upon an inflated debt and dividends on "wat- 
ered" capitalization, and the total cost would be 6.32 cents. 
The Edison Company has charged private consumers as 
high as 15 cents per kilowatt hour for electric current. 
It has charged, therefore, over 125 per cent, more than 
the total cost, including all incidental expenses, fraudu- 
lent as well as honest. Until recently the city paid at the 
same rate, but the rate has now been reduced to 12.27 
cents per kilowatt hour. The officers of the company 
admitted before the Stevens Committee, that some of its 
private customers were furnished at five cents and some 
as low as three cents per kilowatt hour. The average 
rate in 1904 was 8.04 cents per kilowatt hour against an 



28 THE LIGHTING MONOPOLY. 

actual cost of 3.66, which covered all expenses except 
interest upon the funded debt. 

For incandescent lamps furnished under a blanket con- 
tract, for which other large private consumers would 
have paid $25,000, it appeared from the testimony of one 
of the officers of the company before the Stevens Com- 
mittee that the city had been obliged to or rather did pay 
$80,000. The proceeds of this "graft" yielded the Light- 
ing Trust at the expense of the city $55,000.00, for which 
the city got no value at all. It is strange that in view of 
examples such as these objection is made to public 
ownership on the ground that it would encourage cor- 
ruption in our politics. 

THE BOROUGH OF BROOKLYN. 
The Gas Companies. 

In the Borough of Brooklyn, the Brooklyn Union Gas 
Company holds complete sway. Its monopoly is as com- 
plete within its territory as is that of the Consolidated 
within Manhattan. This company operates under fran- 
chises which it claims are practically perpetual. It con- 
trols The Woodhaven Gas Light Company, The Flat- 
bush Gas Company, The Newtown Gas Company, The 
Richmond Hill and Queens County Gas Light Company, 
and the Jamaica Gas Light Company. The East River 
Gas Company of Long Island City also claims rights in 
Brooklyn. This company, as we have seen, is controlled 
by the New Amsterdam Gas Company. 

The Brooklyn Union Gas Company claims its rights 
under grants made to the original companies. Many of 
these grants applied only to particular districts and the 
franchises assigned to it are in terms not assignable. 



THE LIGHTING MONOPOLY. 29 

The report of the Stevens Committee, speaking of this 
company, says : 

"It is a serious question to what extent the Brooklyn 
Union Gas Company is lawfully exercising rights in the 
streets of the borough. It is evident that the matter 
should at an early date be made a matter of judicial in- 
quiry upon proper action taken by the municipal author- 
ities. ,, 

Such action should have been taken long ago, and 
would have been taken under an administration anxious 
to protect the public against the Gas Trust. 

The Electric Companies. 

The Edison Electric Illuminating Company of Brook- 
lyn is the only company, except the Flatbush Company, 
furnishing electric current in the Borough of Brooklyn. 
It is controlled by the Kings County Electric Light and 
Power Company, 

These companies claim to hold four special franchises 
originally granted upon specific conditions to the Citi- 
zens' Illuminating Company of New York, the Municipal 
Electric Light Company, the Kings County Electric 
Light and Power Company, and the Edison Electric Il- 
luminating Company of Brooklyn. The first two of these 
companies are merged in the Edison Company. 

Brooklyn's Electric Lighting monopoly is exercised in 
practically the same manner as that of the New York 
Edison Company. The Kings County Electric Light 
and Power Company owns the stock of the Edi- 
son Illuminating Company of Brooklyn, but the 
latter continues to be the operating company for 
its own plant and for the other plants which are con- 
trolled by the Kings County Electric Light and Power 



30 THE LIGHTING MONOPOLY. 

Company. The Edison Illuminating Company has a 
lease from the Kings County Company under which the 
Edison Illuminating Company pays to the Kings County 
Company all the net earnings of the plant after deducting 
the payment of interest on the Kings County Company 
and the Edison Company's bonded debt. Under this 
lease the Kings County Company received from the Edi- 
son Company for the year 1904, $660,500.55. In addi- 
tion to this amount it received $46,927 as interest on 
guaranty fund, deposits, etc., and it paid out in dividends 
$321,508. The Kings County Company pays interest on 
an alleged bonded debt of $11,950,000 and pays 8 per 
cent, dividends on $5,000,000 of capital stock. Since 
1898 it has acquired a surplus of $1,047,704.68. The as- 
sets of the company including all the franchises which it 
claims to own, are stated by the officers of the company to 
be worth $15,000,000. 

The sum charged by the Kings County Company for 
electric current until this year was 20 cents per kilowatt 
hour. On January 1, 1905, the rate was reduced to 15 
cents for the first two hours, ten cents for the third and 
fourth, and seven cents for the fifth and sixth and so on. 
Current was furnished to special consumers as low as 4 
cents per kilowatt hour. 

The Kings County Company maintains 4,200 street 
arc lamps, of which 3,100 are on the arc-head-wire sys- 
tem. The average price per lamp was estimated by an 
officer of the company before the Stevens Committee as 
$115. 

Deducting depreciation expenses and interest charges, 
the cost per light, merely for operation, was stated by the 
company's representative to be $73. 



the lighting monopoly. 31 

Boroughs of Queens and Richmond. 

The Kings County Lighting Company operates in 
Queens as well as in Brooklyn. The Newtown and Flush- 
ing Gas Company operates in Flushing and is merged in 
the New York and Queens Gas Company. The Queens 
Borough Gas and Electric Company operates in the Fifth 
Ward of Queens and in the Town of Hempstead, includ- 
ing the unincorporated villages of Inwood, Cedarhurst, 
Woodhaven and Lynbrook, and in the incorporated vil- 
lages of Lawrence and East Rockaway. 

The New York and Queens Electric Light and Power 
Company also operates in the Borough of Queens. 

In the Borough of Richmond the New York and Rich- 
mond Gas Company and The Richmond Light and Rail- 
road Company both operate. 

In reference to the companies operating in the Boroughs 
of Queens and Richmond the report of the Stevens Com- 
mittee says : "as is in the case of the other companies the 
claims of franchises should be subjected to judicial 
scrutiny, to the end that none of them should be longer 
allowed to exercise rights in the streets and highways to 
which they are not lawfully entitled. " 

The Remsen Bill. 
The East River Gas Company claims, as we have seen, 
to be the owner of the tunnel connecting Queens with 
Manhattan. Manifestly this tunnel is of enormous value 
to the trust and is absolutely necessary for it to enable it 
to carry out its present scheme. The New York and 
East River Gas Company acquired the franchise and tun- 
nel of the Long Island City Company. This franchise 



32 THE LIGHTING MONOPOLY. 

carries with it the privilege of laying pipe lines under the 
streets of the Boroughs of Manhattan and The Bronx as 
well as Queens. To say the least, it is of very doubtful 
validity. To validate it and to cure all the defects in the 
franchise was the purpose of the Remsen Gas Bill. If 
these franchises could be validated, then it would matter 
little to the Gas Trust that all its other franchises had ex- 
pired or would soon expire. The Remsen bill attempted 
to amend the Act of 1892 authorizing the East River Gas 
Company to supply gas in the City of New York. In one 
sweeping sentence it provided that 

"The East River Gas Company of Long Island City, 
its successors and assigns, shall also have the right to 
exercise in the portion of the Borough of Queens, in- 
cluded in the former City of Long Island City, as well as 
in the territory hereinbefore expressly included (viz., all 
the streets and avenues or public places of the City of 
New York) all the rights, powers and privileges herein- 
before conferred upon the said company." 

This bill in efifect sought to revive and extend every 
right which the old East River Gas Company claimed to 
own. It prescribed no period of limitation. It was 
passed by both houses of the Republican Legislature. As 
it was a bill affecting the interests of the City of New 
York, it was sent to Mayor McClellan for approval or 
disapproval. Private citizens and civic organizations de- 
voted to the welfare of the city explained its true charac- 
ter to Mayor McClellan and protested against it be- 
coming a law. 

Notwithstanding that its evil character was made 
perfectly clear, the bill was signed by Mayor McClellan. 
So far as Mayor McClellan was concerned, he did every- 



THE LIGHTING MONOPOLY. 33 

thing possible to cause this measure to become a law. 
The veto of Gov. Odell alone saved the City of New 
York from the enactment into law of the Remsen Bill. 

It is no secret that Mr. Charles F. Murphy's influence 
was responsible for the nomination of Mr. McClellan. In 
this connection it is interesting to recall that a short time 
before the Remsen Bill was presented to the Mayor for 
signature, a contract valued at several hundred thousand 
dollars was given by the Gas Trust to the New York 
Contracting and Trucking Company. 

The New York Contracting and Trucking Company 
is controlled by John J. Murphy (the brother of Charles 
F. Murphy), Mrs. John J. Murphy, Alderman Gaffney. 

The contracts which the Gas Trust have made with 
this company relate principally to work on the new plant 
at Astoria and aggregate $756,127.64 in amount. The 
following testimony was elicited from Mr. Gawtry be- 
fore the Stevens Committee : 

"Q. Why did you select that company? A. We 
looked around and found that they had the most suitable 
plant. 

"Q. Did you know their capital was only $10,000, 
and that all their equipment was covered by chattel 
mortgage? A. I did not know it. 

"Q. Did you enter into this contract because you knew 
it would be agreeable to Charles F. Murphy? A. Not 
at all. 

"Q. Will you swear you never said that? A. I do 
swear it. 

"Q. And you never said you gave the contract be- 
cause you had to? A. I never did. 

"Q. Did you know who controlled the company? 



34 THE LIGHTING MONOPOLY. 

A. Probably we were told. I saw the names on the let- 
ters. 

"Q. Did you know the Murphy of the firm is the 
brother of Charles F. Murphy? A. Not until the grad- 
ing contract was let. I saw it in the newspapers. 

"Q. And you saw that Mr. Murphy had denied any 
interest in the firm? A. I heard he said so." 

Before leaving the subject of the Remsen Bill it is 
well to consider the attitude of the present administra- 
tion toward the East River Gas Company of Long Island 
City. Under the Act of 1892 conferring franchises upon 
this company it was provided that this company should 
pay annually into the treasury of the city three per cent, 
of its gross receipts "for gas furnished by it to private 
and public buildings in the City of New York through 
mains laid by it under the streets or avenues of said city." 
In reference to this matter the report of the Stevens 
Committee says : 

"Since the consolidation it seems that no serious ef- 
fort has been made to operate separately the mains in the 
Borough of Manhattan of the East River Gas Company 
of Long Island City, and the amount payable to The City 
of New York under the Act of 1892 has been arbitrarily 
determined by reference to a percentage of business 
based upon conditions immediately prior to the consoli- 
dation. It seems that a recommendation of the Corpora- 
tion Counsel, made some years ago, that an action 
should be brought for the purpose of ascertaining the 
amount justly payable to the City, has not been acted 
upon and no steps have been taken to ascertain whether 
the provisions of the Act of 1892 have been duly com- 
plied with. It may also be doubted whether, in the ab- 



THE LIGHTING MONOPOLY. 35 

sence of the condemnation proceedings or of due pur- 
chase of the easement, the East River Gas Company of 
Long Island City is entitled to maintain the tunnel under 
PJlackwell's Isiand." 

Some of the Methods and Practices of the Light- 
ing Trust. 

The evils of private ownership and operation become 
clearly evident when one considers some of the methods 
and practices to which the Lighting Trust is resorting. 

The law requires that all gas furnished by the compa- 
nies shall be of a certain quality, and this quality is fixed 
at 22 candle power. The companies have heretofore 
claimed that the gas which they furnished was of the 
quality of 25 candle power. Prof. Halleck, of Columbia 
University, made a thorough examination of the whole 
matter and gave testimony in relation to it before the 
Stevens Committee. He found upon examination that 
the average quality of gas furnished by the Trust was 19 
candle power only. He demonstrated beyond all ques- 
tion that the pressure changed at the works many times 
in a day, and showed that as the pressure increased the 
quality of gas decreased. The increased pressure allows 
a greater quantity of gas to be delivered at the burner 
in order to maintain the required amount of light. The 
inevitable effect of this practice is that the consumer 
burns more gas and thus pays more money for it. Thus 
if $1.00 per thousand cubic foot was paid for 22 candle 
power gas, and the consumer was furnished only 16.5 
candle power, and the additional amount of gas required 
to make up the 22 candle power was forced through the 
pipes by means of increased pressure, the consumer 
would have to pay about $3 to get his full amount of 



36 THE LIGHTING MONOPOLY. 

light. If the consumer required gas of the quality of 19 
candle power at present rates he would have to pay be- 
tween $1.75 and $2 per thousand cubic feet, because so 
much more gas of inferior quality would be required to 
produce the same amount of illumination. The company 
charges at the same rate, but furnishes an inferior quality 
of gas at a higher pressure, and this practically doubles 
the amount which the consumer has to pay for his gas. 
Thus to-day in New York City, although the legal rate 
is $1 per thousand cubic feet, the consumer practically 
pays $2. The testimony of Prof. Halleck makes this 
so clear that a part of it is reproduced here : 

"I have been professor of physics at Columbia thirteen 
years and have given a great deal of attention to the sub- 
ject of gas. Beginning on March 29 I have made daily 
examinations of gas taken from the pipes in Fayer- 
weather Hall. I have prepared tables and charts of the 
variations of pressure and candle power." 

These tables show T that the candle power varied from 
18 to 21, with an average of about 19, with pressure from 
2.6 to 3.9 inches. 

"I notice, particularly on April 2, 5, 6 and 7, that as 
the quality of gas increases the pressure decreases and as 
the quality decreases the pressure increases. By quality 
I mean the amount of illumination given. 

"Q. Can an inferior quality of gas supply a customer 
with the required amount of light ? A. It can, if the flow 
of gas be permitted to increase. 

"Q. And can that extra amount be obtained by in- 
creased pressure? A. Yes, it can. 

"Q. Did you observe that when an inferior quality is 
sent through the mains there was an increase of pressure? 
A. That fact was apparent. 



THE LIGHTING MONOPOLY. 37 

"Q. Did that increased pressure allow a greater quan- 
tity to be delivered at the burner to maintain the required 
amount of light? A. It did. 

"Q. What effect upon the consumer has increased 
pressure with inferior quality? If no regulation is 
made the consumer burns more gas. For the same 
illumination he consumes more gas and pays more 
money ? 

"A. A certain amount of illumination exists in a cubic 
foot of gas.. If the quality be good, it produces a high 
candle power ; if the quality be poor, the cubic foot of 
gas produces a smaller quantity of light. If, however, 
an inferior quality be forced through the pipes by greater 
pressure, the candle power at the burner may still be 
maintained. For example, if you have one cubic foot of 
good gas, and that be mixed with one-half a cubic foot of 
air, you get a lower candle power. But if you increase 
the pressure and force that one and one-half cubic feet 
of gas and air through the burner in the same space of 
time required by the one foot of good gas, you get the 
same amount of illumination. In making these calcula- 
tions I have taken gas at 22 candle power as the basis, 
rating that as 100 and figuring my percentages accord- 
ingly. 

"Q. Now, if gas of 22 candle power is charged at $1 
per thousand cubic feet, what would be the cost to the 
consumer of various inferior grades, sufficient to produce 
the same illumination? A. Seventy-five per cent, quali- 
ty or 16.5 candle power would cost, in such a case, $3 
in the ordinary open-flame burner and $1.30 in the Wels- 
bach burner, to produce the same amount of illumina- 
tion as a thousand cubic feet of 22 candle power gas. 

"Q. Let us have this clear. If a man paid $1 per 



38 THE LIGHTING MONOPOLY. 

thousand for 22 candle power gas and was furnished only 
16.5 candle power, but the additional amount of gas re- 
quired to make up the 22 candle power was forced 
through the pipes by increased pressure, would he have 
to pay $3 to get his full amount of light? A. Yes, ap- 
proximately that sum. 

"Q. If the quality supplied was 19 candle power, what 
would he have to pay? A. He would pay somewhere 
between $1.75 and $2 per thousand cubic feet, because 
so much more gas of inferior quality is required to pro- 
duce the same amount of illumination. I do not mean 
that the company's rate of charge is changed, but the 
consumer would have to pay from $1.75 to $2 for the 
amount of gas at 19 candle power burned to produce the 
same illumination that would have obtained from one 
dollar's worth of 22 candle power gas. I made further 
tests of the amount consumed in various forms of burn- 
ers. The ordinary lava-tip burner is rated to consume 
five cubic feet per hour. On March 29, the tests showed 
that this burner consumed 9.6 cubic feet per hour in giv- 
ing 21.8 candle power." 

This testimony shows that inferior gas furnished at 
high pressure is the cause of poor light and big gas bills 
for the consumer. It also shows that attempts to regu- 
late the price of gas by legal requirement can be and are 
easily circumvented by the Lighting Trust. 

This testimony also explains why so many deaths have 
resulted in this city from suffocation from gas in recent 
years. The records of the coroner's office in Manhattan 
show that during the last year many persons have died 
from involuntary asphyxiation. When gas is turned 
down low, and the pressure at the gas works is decreased, 
the gas is apt to go out altogether, and when the pres- 



THE LIGHTING MONOPOLY. 39 

sure is increased again suffocation is likely to result to 
the inmate of the room where this happens. Thus it is 
evident that the criminal practice to which the Lighting* 
Trust has resorted for the purpose of extorting a fraudu- 
lent rate from the consumer has caused thq loss of many 
lives. 

For a long time the general public have been morally 
certain' that they ,were grossly overcharged for gas. This 
moral certainty became a demonstrated fact from the 
testimony that was( given before the Stevens Committee. 
From the testimony of the officers of the gas companies 
it was proven that gas could be manufactured for 26 
cents a thousand cubic feet and that it could be profitably 
furnished to the consumer for 32 cents, even if the gas 
companies added enough to pay interest upon an inflated 
debt and dividends upon "watered" 'stock. Thus, 32 
cents per thousand would yield the trust a handsome 
profit, but the legal rate is $1 per thousand, and Prof. 
Halleck's testimony shows that the people actually pay 
$2 per thousand. 

WHY SHOULD EVERY CONSUMER PAY $2 
FOR WHAT THE TRUST CAN FURNISH AT A 
PROFIT FOR 32 CENTS? 

This is a question which every consumer of gas would 
do well to ask himself. There can be but one answer, 
and that answer suggests that municipal ownership and 
operation is the only sure and certain way of preventing 
such robbery in the future. 

Although the Lighting Trust owns few, if any, fran- 
chises, it operates under franchises which have expired 
and which are enormously valuable. By the Franchise 
Tax Law, which was passed during the administration 
of Governor Roosevelt, these franchises were subject to 



40 THE LIGHTING MONOPOLY. 

taxation. That law has now been upon the statute books 
for six years, and the litigation to which the Trust has 
resorted in the effort to have the law declared uncon- 
stitutional has just been terminated by the decision of 
the United States Supreme Court declaring the law to 
be constitutional. 

The Lighting Trust is, also, taxable upon its other 
properties, and the sworn returns which its officers have 
made grossly underestimate the properties which the 
Trust owns. 

For purposes of watering its stock, it claims a large 
value for its properties, but for purposes of taxation its 
properties suddenly shrink to an exceedingly small 
amount. The facility with which its thoroughly respect- 
able officers, who stand high in the commercial world, 
make these conflicting statements and representations, 
shows an elasticity of conscience upon their part which, 
if not commendable, is, to say the least, truly remarkable. 

In 1902 Mayor Low's administration refused to accept 
the bids of the gas and electric lighting companies for 
street lighting. 

The refusal was based upon the ground that the bids 
were not competitive and the prices asked grossly ex- 
orbitant. The companies, however, continued to furnish 
the light. The companies did not institute any suit to 
recover the amount which they claimed to be due. In 
December, 1903, the Board of Estimate and Apportion- 
ment, upon the report of a committee', of which Comp- 
troller Grout was a member, rejected the bids as unrea- 
sonably high. The companies claimed about $3,000,000 
for light which they claimed they had furnished the city. 
Upon this amount they made a claim for $32,000 as in- 
terest. 



THE LIGHTING MONOPOLY. 41 

Mr. Oakley made a contract with the companies by 
which he approved the plan of paying these claims which 
had been rejected by the Low administration, and which 
C. F. Lacombe, Engineer of the Department of Water 
Supply, Gas and Electricity, declared after investigation 
to be "excessive and erroneous/' Mr. Oakley assigned 
as his reason for making this contract that the companies 
agreed to waive their claim for interest : though whether 
the claims could lawfully carry interest was the subject 
of dispute. The peculiar fact about the whole trans- 
action is that the agreement to waive interest was not 
contained in the contract. Nor was it set forth in letters 
which passed between the Commissioner and the com- 
panies which purport to bear the same date as the con- 
tract. No official other than Mr. Oakley admits know- 
ing of this agreement to waive interest. Both Mayor 
McClellan and Comptroller Grout deny- that they knew 
anything about it. The question naturally arises as to 
why the agreement to waive interest was not included 
in the contract. The payment of this $3,000,000 to the 
Lighting Trust was prevented by an injunction secured 
by Mr. William R. Hearst as a taxpayer, and in the dis- 
closure which followed, the plea was made that interest 
was waived. Commissioner Oakley advanced the plea that 
interest had been waived as his excuse for making the 
contract. To say the very least, this method of making 
contracts with the Lighting Trust is most unbusinesslike. 
If the injunction secured by Mr. Hearst had not centered 
public attention on this contract, nothing but the action 
of Commissioner Oakley or the honesty of the companies 
could have prevented the payment of the $3,000,000, 
together with the $32,000 interest to the lighting com- 



42 THE LIGHTING MONOPOLY. 

panies. If the waiver of interest was a part of the con- 
tract, why was it not included in the contract ? Why was 
this waiver of interest which was the only consideration 
for the agreement to pay the company's exorbitant 
claims, evidenced by no writing, and known to no other 
official but Commissioner Oakley? 

The prices which the Trust charged the city were from 
20 to 40 per cent, .higher than are paid in other cities 
of the United States and Great Britain. Before the 
Stevens Committee, Mayor McClellan testified that Com- 
missioner Oakley signed the contract without his knowl- 
edge. The Mayor said he first heard of Oakley's action 
from a reporter. In reference to this matter the Mayor 
gave the following testimony : 

"I sent for Oakley and asked for an explanation. He 
told me there had been a reduction of price of arc lamps 
and it was the best arrangement that had ever been made, 
that he had consulted the Comptroller and the Comp- 
troller approved. I became convinced that he had acted 
in good faith in what he had done. 

"Q. Did you approve his act? A. No. 

"Q. And you never have approved it? A. No, I have 
not. 

"Q. Did you take any action with regard to the bids 
for this year? A. Yes, I wrote to the Commissioner in 
advance that unless there was a material reduction the 
bids would not be accepted. As soon as the tabulation 
was submitted to me I directed the acting Commissioner 
to reject all bids, which was done. 

"Q. What is the position of the city now? 

"A. That there are no contracts.. I do not regard the 
contracts made by Commissioner Oakley as in any way 



THE LIGHTING MONOPOLY. 43 

prejudicing the position of the city, because they did not 
become effective. " 

The report of the Stevens Committee says of this mat- 
ter that "The action of the Commissioner in signing the 
contracts for 1904 deserves strong condemnation, and 
has resulted in greatly embarrassing the city in its oppo- 
sition to the payment of exorbitant prices." The $3,000,- 
000 of the city's money has not yet been paid to the 
Lighting Trust. If any doubt existed before the Stevens 
Committee commenced its investigation as to whether 
the companies overcharged the city, none exists at 
present. The injunction obtained by Mr. Hearst was 
vacated by the Court because no proof of fraud or cor- 
ruption was presented. When the case was brought to 
trial an attempt was made to prove the fraudulent char- 
acter of the charges which the companies had made from 
the books of the companies, but the objection of counsel 
for the Mayor and Comptroller prevented an opportunity 
to inspect the books. The case is now on appeal. 

The interest which Mayor McClellan has displayed in 
forcing the companies to pay the city what they owe, 
and his efforts to prevent the companies from using the 
streets under franchises which have expired, is best 
shown by his own testimony given before the Stevens 
Committee. It was as follows : 

"Q. Has any action been taken by the city to ascertain 
what gas franchises are existing? A. The Corporation 
Counsel has been making an investigation ever since he 
has been in office. 

"Q. Has any action been taken by the city for the pur- 
pose of stopping the use of streets where they are used 
without approval ? A. They are now litigating to obtain 
possession of the subway ducts. 



44 THE LIGHTING MONOPOLY. 

"Q. Do I understand that the Corporation Counsel 
has been over a year trying to find out whether the gas 
companies are exercising franchises which they do not 
possess ? A. I do not know when, exactly, he began, but 
he has been a good while at it. His is a very busy office, 
Mr. Hughes. 

"Q. What return is the city getting from the East 
River Gas Company under the provisions of the Act of 
1892, providing for a percentage payment to the city? 
Do you know whether any efforts have been made to de- 
termine whether that company is paying a proper 
amount under that provision? A. I cannot tell you. I 
do not know. 

"Q. The matter is all before the Corporation Counsel, 
but no step has been taken ? A. Not that I know of. 

"Q. What is your official position with regard to that, 
if any ? A. It would depend entirely upon what the views 
of the Corporation Counsel might be ; I should be guided 
very largely by his advice, he being my legal adviser. 

"Q. And in case it should be found that any franchises 
had expired, the position would be that the company 
must acquire the proper franchise before it would be al- 
lowed to operate? A. Certainly/' 

Even those who oppose municipal ownership and 
operation as a remedy admit the truth of the charges 
against the trust. Upon every count of the indictment 
the Lighting Trust is guilty. That the truth of these 
charges is admitted by opponents of municipal owner- 
ship and operation is evidenced by two editorials from 
the New York World and the New York Evening Post, 
which are quoted below. 

On April 19, 1905, the New York World published 



THE LIGHTING MONOPOLY. 45 

the following editorial under the heading "The Grip of 
the Gas Trust" : 

"In the august chamber of the Supreme Court of the 
United States counsel for the New York Gas Trust yes- 
terday pleaded against the payment of taxes due from it 
under a law passed when Theodore Roosevelt was Gov- 
ernor of New York. 

"Almost at the same hour an expert testified at the gas 
hearing in this city how the trust increases the pressure 
on its mains to drive poor gas faster through the meters 
and rob the citizens and the city. Most amazing of all, 
the chief engineer of the Trust corroborated this testi- 
mony so far as the pressure is concerned. 

"Even while public attention is centered upon the Gas 
Trust's extortion it is ranging itself with the grocer who 
puts powdered talc in the flour he sells, with the milk- 
poisoners who slaughter babies. Its 'respectable 5 di- 
rectors not only swindle by false measure, but they 
menace life. A gas jet turned low at high pressure flick- 
ers out when the pressure is reduced at night and may 
fill a bedroom. 

"Never was case more clear. As the World has shown, 
the trust is outlaw. It has no valid franchise. It has 
issued bonds to thrice the value of its plant and an ocean 
of stock besides. It earns 60 per cent, upon a reasonable 
capitalization. It exacts 11 cents per unit from the city 
for electric lighting, sold to favored customers at three 
cents. It can profitably manufacture honest gas for 40 
cents. It does force dishonest gas through its pipes for 
the legal rate of $1. 

"What would a private corporation, served by a capa- 
ble executive, do if confronted by such extortion in a 



46 THE LIGHTING MONOPOLY. 

matter absolutely within its control ? 

"The city is, or should be, a business corporation. 
What will Oakley do, who agreed to the trust's ex- 
orbitant city contract? What will the Mayor do, who 
signed the Remsen gas grab? What will Murphy do, 
who owns both the Mayor and Oakley, with that 
* * * Astoria gas contract among the others in his 
brother's convenient pocket? 

"No wonder that the trust, calm in the face of the evi- 
dence of its extortion, unmoved by its voided franchises, 
repeats to the citizens Tweed's old query : 'What are you 
going to do about it ?' " 

And the Evening Post, in an editorial of April 20, 
1905, deploring what it considered "The Growth of So- 
cialism," said : 

"The insolence and extortion of our railway and light- 
ing companies have also stirred profoundly the popular 
consciousness. We may endure with comparative 
equanimity the spectacle of the elected representative of 
the people selling himself to a piratical corporation, but 
the most apathetic of us resents having his pockets 
picked to pay some one else's dividends on watered stock. 
Human nature being what it is, the gas investigation in 
this city has made friends by wholesale for the project of 
municipal gas and electric plants. When a monopoly 
manufactures gas at from thirty to fifty cents a thousand 
feet and sells for a dollar, when it meets heavy interest 
charges on enormous overcapitalization, when it deliber- 
ately supplies a product inferior to the stipulated quality, 
when it juggles with the pressure in order still further to 
swindle the consumer, no one can be surprised if men, in 
their haste, seize the weapon of municipal ownership." 



THE STREET RAILWAY MONOPOLY. 47 

CHAPTER III. 

The Street Railway Monopoly. 

Railroads in the Boroughs of Manhattan and 
The Bronx. 

The history of the street railroad franchises in New 
York City is a record of corporation fraud and municipal 
corruption. Its record is too long and intricate to trace 
in this place. 

The first grant of a franchise in the Borough of Man- 
hattan was in 1832. Since that time the Board of Alder- 
men have bestowed the city's franchises with a lavish 
hand. The city's most valuable properties have literally 
been disposed of by wholesale. Most of the franchises 
were given away without any compensation being re- 
ceived by the city. Eighth, Sixth, Third, Second and 
Ninth Avenues were rapidly acquired by the franchise 
grabbers. Several attempts to secure Broadway were 
made before Jake Sharp finally obtained the present 
franchise from the "Boodle Board of Aldermen" of 1884. 
As a result of the process resorted to in order to secure 
this franchise, several members of the Board of Alder- 
men were convicted of bribery and sentenced and sev- 
eral others went to Canada. But the fact that the fran- 
chise which was granted in perpetuity, was obtained by 
bribery, which was proved in a court of law beyond a 
reasonable doubt, did not impair the validity of the fran- 
chise, and it is one of the most valuable franchises which 
the city ever possessed. As rapidly as population moved 
uptown valuable franchises in the streets and avenues 



48 THE STREET RAILWAY MONOPOLY. 

of the northern part of the city were acquired by the 
same questionable methods. When electric power be- 
came more convenient than horse power, permission, 
which was equivalent to the grant of a new franchise, 
was obtained to change the motive power. As franchises 
expired renewals were obtained and with the city's 
growth many extensions were granted. The famous, 
or, rather, infamous, "Huckleberry" franchise covered 
100 miles of streets and extended through Williams- 
bridge, West Farms, Mt. Vernon and other villages and 
districts. In 1893, the Metropolitan Street Railway was 
formed and effected a consolidation of many other rail- 
road franchises. The Metropolitan and the Third Ave- 
nue Railroad engaged in a lively scramble to secure the 
Kingsbridge franchise. Finally these two companies 
came to an agreement and during the administration 
of Mayor Van Wyck this franchise was granted. The 
New York Elevated Railroad Company was organized 
in 1875 an d later became known as the Manhattan Ele- 
vated Railroad Company. 

A good summary of the history of the street railway 
franchises is contained in the "History of Public Fran- 
chises in New York City," by Mr. Gustavus Myers, and 
in the chapter by Dr. Max West in "Municipal Monopo- 
lies," edited by Prof. Bemis. At present all the street 
railroad franchises in Manhattan and The Bronx 
whether in, over or under the streets, are controlled by 
two companies. The street surface railroad franchises 
are controlled by the New York City Railroad Company 
and the elevated railroad and subway franchises are 
controlled by the Interborough Rapid Transit Company. 



the street railway monopoly. 49 

The Interborough Rapid Transit Company. 

The Interborough Rapid Transit Company was in- 
corporated May 1st, 1902, under the provisions of the 
Railroad Law and the Rapid Transit Act. It was or- 
ganized principally for the purpose of maintaining and 
operating the Rapid Transit Railway under the Manhat- 
tan-Bronx franchise originally granted to John D. Mc- 
Donald. It acquired all the rights of the contractor by 
agreement dated July ioth, 1902. This company also 
acquired the rights in the Brooklyn-Manhattan franchise. 
The terms of these franchise grants are discussed in the 
chapter dealing with the Rapid Transit Commission. In 
January, 1903, the Manhattan Railway Company leased 
to this company all of its railroads and property for a 
period of 999 years from November 1, 1875, the date of 
the organization of the Manhattan Railway Company. 
This company is capitalized for $35,000,000. Of the total 
issue of stock $13,600,000 was used to acquire the $6,000,- 
000 stock and all interests of the Rapid Transit Subway 
Company. $9,000,000 was offered to stockholders of 
this last named company at par and $2,400,000 was sold 
to the public at no per cent. In June, 1904, the stock 
of the company was held by 415 stockholders. All of 
the stock was held under a voting trust for five years 
from May 12, 1902. Mr. August Belmont is the presi- 
dent of the company. 

The Manhattan-Bronx Subway franchise has not yet 
been in operation for a period of a year, and no report 
to the State Railroad Commission has yet been pub- 
lished as to its earnings and expenditures. The Man- 
hattan Railway division has a trackage of 37 miles and 
includes all the elevated railroads in the Boroughs of 



50 THE STREET RAILWAY MONOPOLY. 

Manhattan and The Bronx. The equipment of this di- 
vision on June 30, 1904, amounted to 838 motor cars 
and 671 other cars. The net earnings from the opera- 
tions of the elevated on June 30, 1904, was $8,431,634.51. 
For advertising and news privileges on the elevated 
roads the company received $219,197.22 and $15,000 
for telegraph privileges. In rentals for leased lines 
$3,876,500 was paid, and its net income from all sources 
was $1,925,726.13. From passengers in cash fares, 
ticket fares and chartered cars the elevated roads re- 
ceived $14,139,359.20 for the year ending June 30, 1904. 
For carrying mail during this time it received $17,948. 
From the New York and Putnam Railway Company 
for use of terminal it received for the same period 
$10,500 and for the transportation of newspapers and 
messengers it received $19,878.40. The total gross earn- 
ings from the elevated roads for the year ending June 
30th, 1904, amounted to $14,187,685.50. During this 
period the elevated roads carried 286,635,195 passengers. 
On the Manhattan Railway division for this year the 
company employed on the average 5,781 employees, 
including officials, to whom it paid in salaries and wages 
$3*909,765. 37. Of this sum $145,020.15 was paid to 
officers and clerks. The wages of employees other than 
officers and clerks were from $1.55 to $3.50 per day 
and they worked from 9 to 10 hours per day. 



New York City Railway Company. 

In 1902 the Metropolitan Street Railway Company 
leased to the Interurban Street Railway Company its 



THE STREET RAILWAY MONOPOLY. 5 1 

railroad, and railroad routes, branches, connections, 
franchises, rights, powers and privileges for a term of 
999 years. In February, 1904, the Interurban Company 
changed its name to the New York City Railway Com- 
pany. This company was originally capitalized for 
$500,000 and was understood to have acquired a 999 
years' lease of the People's Traction Company, which 
had the right to build an extensive system of trolley 
lines in the Borough of The Bronx and was to build 
some fifty miles outside of the city limits in connection 
with the New York, Westchester and Connecticut Trac- 
tion Company. In February, 1902, the capital of the 
company was increased to $20,000,000. The Metropol- 
itan Securities Company was organized in 1902 as a 
security-holding company with a capital of $30,000,000 
for the purpose of providing for the present and future 
needs of the Metropolitan Street Railway Company. 
This company owns the entire stock of the New York 
City Railway Company, which, as we have seen, leased 
the Metropolitan Street Railway Company. It also 
owns all the stock of the People's Traction Company 
and the New York, Westchester and Connecticut Rail- 
way Company and $3,379,000 stock of the Third Ave- 
nue Railway Company. The powers of this company 
are very broad and allow it to acquire the securities of 
corporations of New York State or any other State, in- 
cluding corporations which own, operate or lease street 
surface railroads, elevated railroads, railway terminals, 
"or railroads of any character or description in the City 
of New York, or its suburbs, or in territory adjacent 
thereto, and corporations engaged in furnishing or or- 
ganized to furnish electricity for any lawful purpose, 



52 THE STREET RAILWAY MONOPOLY. 

or power in any form, for use upon, or which may be 
used upon street railroads or other railroads, etc/' This 
Securities Company paid $23,000,000 for the entire cap- 
ital stock of the New York City Railway Company and 
the Securities Company is to acquire all further issues 
of stock or securities of this company. In leasing the 
Metropolitan Street Railway Company, the New York 
City Railway Company guaranteed 7 per cent, per an- 
num on its stock. The Metropolitan is capitalized for 
$52,000,000. In October, 1897, a 20 per cent, dividend 
debenture certificate was made to the stockholders of 
the company and the certificate was paid off in the next 
year. The New York City Railway Company also pays 
5 per cent, per annum on the stock of the Third Ave- 
nue Railroad. 

To trace the inter-contract relations which all the 
various street railway companies have between them- 
selves and to unravel the tangled web which the street 
railway financiers have woven to disguise their enor- 
mous profits would be too long and technical to attempt 
in this place. Generally speaking, it may be said that 
the Metropolitan Securities Company owns the stock 
of the principal companies, which latter companies con- 
trol and hold the bonds of smaller companies and lease 
at large rentals the franchises of various other compa- 
nies. 

Each company has watered its stock many times, and 
the organization of a Securities Company is a convenient 
method by which more water is pumped into them when 
they are re-issued as the stock of the new company. 
The one fact that is perfectly clear through all this com- 
plicated tangle is that all the dividends that are paid 



THE STREET RAILWAY MONOPOLY. 53 

on all the stocks of the various companies, and all the 
interest that is paid on all the inflated "'debts" of these 
companies, together with all other charges, rentals and 
expenses come out of the people of the community. 

During the year ending June 30, 1905, the New York 
City Railway Company carried 433,114,493 passengers, 
including those carried on transfers. The average num- 
ber of employees, including officials, was 8,503. Dur- 
ing the year this company received from passengers in 
cash fares, ticket fares or chartered cars, $15,106,536.21 
and for express and mail service it received $27,064.49. 

The following table shows the roads owned or leased 
by this company and the terminals of each road and 
the miles of trackage owned by each : 



54 



THE STREET RAILWAY MONOPOLY. 



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THE STREET RAILWAY MONOPOLY. 



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56 the street railway monopoly. 

The Brooklyn Rapid Transit Company. 

The Brooklyn Rapid Transit Company was incorpor- 
ated in 1896. It is not itself an operating company, 
but it controls the various street railway and elevated 
railway lines in Brooklyn, through the ownership which 
it has secured directly or indirectly of the stock of these 
several companies. This company owns the entire cap- 
ital stock of the following named companies : Brooklyn 
Heights R. R. Co., Brooklyn, Queens County and Su- 
burban R. R. Co., the Sea Beach Ry. Co., the Coney 
Island and Gravesend Ry. Co., the South Brooklyn Ry. 
Co., and the Transit Development Co. It also owns 
not less than 93 per cent, of either the preferred or 
common stock of the Nassau Electric Co. and the Amer- 
ican Ry. Traffic Co. The franchises of these several 
companies have undergone many changes, but most of 
these franchises, it is claimed, were granted for 999 
years from various dates, the earliest of which was 1893. 
The company operates over 532% miles of track, of 
which 68 miles are elevated. On the elevated lines the 
motive power is partly the electrical third rail system 
and partly steam. The company's lines, both surface 
and elevated, operate over the Brooklyn Bridge. Its 
equipment consists of 1,408 open cars, 1,700 closed cars, 
255 combination cars and 335 mail and freight cars, 
sweepers, snow plows and other articles and 120 loco- 
motives. The company is capitalized for $45,000,000 
and has a total bonded debt of $69,699,000, for which 
there is an annual interest charge of $3,243,444. After 
paying interest on its large bonded debt, its earnings 
for the year ending December 31st, 1904, were: Gross, 



THE STREET RAILWAY MONOPOLY. S7 

$15459,660; net, $6,197,744; surplus after deducting 
charges, $1,473,271. 

The company claims that the cost of its road and 
equipment is $99,114,623.75. There is little doubt that 
the whole could be replaced for about a third of this 
amount. 

The company by its charter is authorized "to pur- 
chase, acquire, hold and dispose of the stock, bonds and 
other evidences of indebtedness of other corporations, 
domestic or foreign, and issue in exchange therefor its 
stock, bonds or other obligations." The company is 
the successor of the Long Island Traction Company, 
which was a corporation formed under the laws of Vir- 
ginia, whose property was sold under foreclosure in 

1895- 

Notwithstanding that the Brooklyn Rapid Transit 
Company enjoys valuable franchises in hundreds of 
miles of the city's streets and has been accorded fran- 
chises which are practically perpetual, probably no cor- 
poration which has ever operated in the city of New 
York has shown a more consistent contempt for the 
public and a more complete disregard of their rights 
and convenience than has this company. Its cars are 
in bad repair and are permitted to remain in a dirty 
condition, while during the winter months little or no 
attempt is made to keep them adequately heated. The 
services accorded the public of the Borough of Brook- 
lyn, that is at present absolutely dependent upon it, are 
simply atrocious. The treatment of its employees has 
always been bad, and, in common with the other rail- 
road companies operating in the city, it has paid no at- 
tention whatever to the provisions of the labor law. 



58 THE STREET RAILWAY MONOPOLY. 

Under no railroad system in the city is it so conspic- 
uously obvious that the road is run for private gain 
rather than to serve the public as it is in the Brooklyn 
Rapid Transit Company. Its management has always 
proceeded upon the theory that the public possess no 
rights which Brooklyn Rapid Transit was bound to re- 
spect. It is generally understood that this company 
means to attempt to secure control of some of the new 
subways to be built in Brooklyn and may even attempt 
to cross the river and secure franchises in Manhattan as 
well as in the other boroughs. 

Railroads in the Borough of Queens. 

The New York and Queens County Railway Company 
and the New York and Long Island Traction Company 
control the street railway situation in the Borough of 
Queens. The New York and Queens County Railway 
Company was incorporated in 1896 as a consolidation of 
the Long Island City and Newtown Railway, the Riker 
Avenue Railway Company, the Flushing and College 
Point Railway Company and the Steinway Railroad 
Company and the Queens Railway, which succeeded the 
former New York and North Shore Railway Company. 
This system covers Long Island City and includes a 
line to Flushing. It operates 75 miles of track and is 
capitalized for $5,000. Its gross earnings for 1903-4 
amounted to $653,445, and its net earnings amounted 
to $284,390. 

The New York and Long Island Traction Company 
was incorporated in 1900 under another name. The 
company operates 30 miles of road from Mineola, Long 



THE STREET RAILWAY MONOPOLY. 59 

Island, south, through Garden City, Hempstead, to Free- 
port, thence west from Freeport through Baldwins, 
Oceanside, Rockville Center, Lynbrook, Valley Stream, 
Rosedale, Springfield, Ozone Park (in Greater New 
York, Borough of Queens), to the terminus of the Ful- 
ton Street elevated lines and the Douglas Street surface 
lines of the Brooklyn Rapid Transit Company at Wood- 
lawn,- in the Borough of Brooklyn, with a track also, 
from Hempstead to Queens, in the Borough of Queens. 
All of these franchises in the Borough of Queens are 
believed to have come under the control of the Belmont 
interests by recent transfers. 

Railroads in the Borough of Richmond. 

The Richmond Light and Railroad Company was in- 
corporated in 1902, as a consolidation of the Staten Isl- 
and Electric Railroad Company, the New York and 
Staten Island Electric Company and the Richmond 
County Power Company. This Company operates 31 
miles of track extending from Howland Hook to South 
Beach. The company is capitalized for $3,000,000 and 
has an authorized bonded debt of $2,500,000. 

The Southfield Beach Railroad Company was incor- 
porated in 1899 and operates four miles of track, ex- 
tending from South Beach to Midland Beach. The elec- 
tric cars are leased from the Richmond Light and Rail- 
road Company. It is capitalized for $250,000 and has an 
authorized debt of $150,000. 

The Staten Island Midland Railway Company was or- 
ganized in 1890 and in 1895 absorbed the West Brighton 
and Stapleton branches and the Prohibition Park Elec- 



60 THE STREET RAILWAY MONOPOLY. . 

trie Railroad Traction Company. It operates 29 miles 
of track extending from Port Richmond, opposite Ber- 
gen Point, to Midland Beach, from St. George to Rich- 
mond, with several branches. 

The company is controlled by the same interests as 
control the Richmond Light and Railroad Company. It 
is capitalized for $1,000,000. 



THE RAPID TRANSIT COMMISSION. 6l 

CHAPTER IV. 

The Rapid Transit Commission. 

Its History, Nature and Constitution. 

The Rapid Transit Act was passed in 189 1. It was 
entitled "An Act to provide for rapid transit railways 
in cities of over 1,000,000 inhabitants." It provided for 
the continuance in office of William Steinway, John H. 
Starin, Samuel Spencer, John H. Inman and Eugene 
L. Bushe, who had been appointed as Commissioners 
under the act of 1875. The Commissioners were re- 
quired by the act to investigate and, if they deemed that 
the construction of a rapid transit railroad was neces- 
sary, they were required to adopt the routes and general 
plan of construction of such railroad, to obtain the con- 
sent to the construction and operation of such railroad 
of the local authorities and the property-holders affected, 
or, if the consent of the property-holders should be with- 
held, then the substituted consent of the General Term 
of the Supreme Court, and to adopt detailed plans for 
the construction and operation of such railroad and to 
sell the right to construct and operate such railroad to a 
corporation to be formed under the terms of the act. By 
the 32d section of this act, a very large power was also 
conferred upon the Commissioners to grant additional 
franchises to existing railroad corporations. The act of 
1894 (Chap. 752) substituted a new Rapid Transit 
Board for that existing under the act of 1891 and pro- 
vided that such Board should be composed of the Mayor, 
the Comptroller and the President of the Chamber of 
Commerce as ex-ofRcio members, and of Messrs. Wil- 



62 THE RAPID TRANSIT COMMISSION. 

liam Steinway, Seth Low, John Claflin, Alexander E. 
Orr and John H. Starin. It left unmodified the provis- 
ions of the act of 1891, authorizing the Board to grant 
additional franchises to existing railroads. It provided 
that the Board should either adopt the plans for the rapid 
transit railroad, prepared by the preceding Board, or 
should adopt new plans and obtain the consents of the 
local authorities and of the property-holders or the sub- 
stituted consent of the court. It required, also, that after 
either re-adopting such old plans or framing new ones 
and obtaining the requisite consents, the Board at the 
next general election should submit to the qualified 
electors of the city "the question whether such railway 
or railways, shall be constructed by the city and at the 
public expense." It was further provided that if such 
question were determined in the negative at the election, 
the Board should proceed to sell the franchise to con- 
struct and operate such railroad to some private corpor- 
ation in the manner prescribed by the act of 1891. If 
such question should be determined in the affirmative 
at the election, the act provided that the rapid transit 
railroad should be constructed at the public expense, and 
should be and remain the absolute property of the city 
and that the Rapid Transit Board should either provide 
for the construction of the railroad according to the 
routes, plans and specifications adopted prior to the elec- 
tion, or should "change and modify the said routes, plans 
and specifications, as they might deem desirable." The 
act further prescribed that, after establishing the routes 
and plans for the railroad and obtaining the necessary 
consents, the Board should, after advertising for propo- 
sals, enter into a contract with some person, firm or cor- 



THE RAPID TRANSIT COMMISSION. 63 

poration for the construction of the railroad for the city 
and at its expense. The contract was also to require the 
contractor to operate the railroad as the lessee of the city, 
for a term of not less than thirty-five nor more than fifty 
years, to be specified in the contract, at an annual rent 
sufficient in amount to pay the interest upon the bonds to 
be issued by the city to raise the money necessary to con- 
struct the railroad and not less than one per cent, in addi- 
tion thereto. The contractor was to supply the equip- 
ment at his own expense. As security for the due per- 
formance of the entire contract, the contractor was to fur- 
nish a bond to the city in an amount to be determined by 
the Board ; the city was to have a lien upon the equipment 
furnished by the contractor, and the contractor was also 
to deposit the sum of one million dollars with the City 
Comptroller, which was, however, to be returned when the 
railroad was constructed and equipped. All details as to 
the construction and operation of the railroad were left to 
the discretion of the Rapid Transit Board, and the further 
duty was imposed upon the Board of supervising the con- 
struction and operation of the road. The statute ex- 
empted from taxation the interest of the lessee in the con- 
tract and authorized the city to issue its bonds to raise 
the requisite funds for the enterprise; with the proviso 
that the total issue should not exceed the sum of fifty 
million dollars. 

The statute preserved to the Board the power to grant 
additional franchises to companies actually operating rail- 
roads within the city. 

(Report of B. of R. T. R. Com., 1900-1901, pp. 13-16.) 
While the Rapid Transit Act is not a local act, New 



64 THE RAPID TRANSIT COMMISSION. 

York City is the only city which has been or is now sub- 
ject to its provisions. 

The act was still further amended in 1895. Vacancies 
were to be filled by a majority vote of the remaining mem- 
bers of the commission, and thus the Board was to become 
a self-perpetuating body. The Board so created was to 
have the powers conferred upon it by the act "and also 
such other and necessary powers as may be requisite to 
the efficient performance of the duties imposed upon said 
Board by this act." 

The law under which the Commission acts is too volu- 
minous and technical to justify going further into its de- 
tails. Every section is worthy of consideration. In the 
very nature of things the general public cannot familiar- 
ize itself with the whole of this mass of technical details. 
They must rely for the protection of their rights upon 
their chosen officials. A volume might be written upon 
the powers of the Commission and pointing out sections 
and phraseology in the act which are more favorable to 
private than to public interests. 

Before the Commission was authorized to proceed with 
plans for a rapid transit railroad it was required, as has 
been stated, to submit to a popular vote the question 
whether a subway railroad should be built at public ex- 
pense. 

Two ballots were, at the election of November 6, 1894, 
delivered to each voter, upon which the people voted : 
Upon one ballot was printed the words, "For Municipal 
Construction of Rapid Transit Road," and upon the other 
ballot was printed the words, "Against Municipal Con- 
struction of Rapid Transit Road." The affirmative prop- 
osition received a large majority of the vote cast. The 



THE RAPID TRANSIT COMMISSION. 65 

total vote was 184,035; affirmative, 132,647; negative, 
42,916; defective ballots, not counted, 399. 

From the form of this question many believed that in 
voting for the affirmative of the question they were voting 
for municipal ownership and operation of the subway. 
Later they learned that the city's privilege consisted in 
advancing the money with which to build the subway, and 
that when this was done it was to be surrendered to a 
private corporation. The city had to bear the expense 
and the Belmont Syndicate was to reap the profits. The 
idea of a subway railroad to be owned by the Municipality 
was bitterly opposed by those interested in other street 
railways, and the New York Sun referred to the subway 
contemptuously as "The Hole in the Ground/' and insti- 
tuted an action for the purpose of having the law under 
which the subway was built declared unconstitutional. 
The courts, however, sustained the constitutionality of the 
Act. (See the Sun Printing & Publishing Association 
vs. The Mayor, 152 N. Y., 257.) 

The present Rapid Transit Commission is a wholly ir- 
responsible body. Its jurisdiction extends over rapid 
transit in New York City, and yet its permanent mem- 
bers are all appointed to hold office for life by the Legis- 
lature at a salary of $5,000 each a year. It is a self-per- 
petuating body. They have no power to operate a rail- 
road at present and must lease the privilege to private 
corporations. They are absolutely prohibited from mak- 
ing contracts for franchises, to be constructed with any 
part of the city money, for less than thirty-five years. 
Even if the opportunity presented itself to lease advant- 
ageously such franchises for less than thirty-five years the 
city could not take advantage of it. Thus the Commis- 



66 THE RAPID TRANSIT COMMISSION. 

sion is in no position to make a "bargain" with the private 
corporations with which they are forced to contract. The 
Elsberg bill, which was introduced into the Legislature 
as the result of the efforts of those who were really friend- 
ly to rapid transit, conferred upon the Commission the 
right to operate in case favorable terms could not be se- 
cured, from private corporations. The bill met with the 
persistent opposition and bitter hostility of the Commis- 
sion. The Commission based its opposition upon the 
ground that public operation under any circumstances 
would be a dangerous alternative, which should not be 
adopted. The Commission prefer that the city's interests 
should be plundered by private corporations, through 
contracts which they make, rather than that they should 
be placed in a position where they could contract with ad- 
vantage to the city's best interests. The Elsberg 
bill contained other provisions, the adoption of which 
would have been of the greatest benefit to the city. The 
bill empowered the Commission in its discretion to let the 
construction contracts separately from the operating con- 
tracts and vested in the Commission power to dispense 
with the one million dollar deposit now required by law 
as security. It also provided that operating contracts be 
limited, in case the operator equips the road to 20 years 
and in case the city equips the road to 10 years, with one 
renewal of 10 years. . The bill also provided that 
franchises for extension of present lines might be 
granted for 25 years only, instead of 35 years as 
at present, with renewals aggregating 20 years, in- 
stead of indefinite renewals as at present. It also 
contained two other excellent provisions. One pro- 
vided that pipe galleries be built in connection with 
Rapid Transit subways, and the other provided that the 



THE RAPID TRANSIT COMMISSION. 67 

exemption from taxation feature be omitted from the 
Act. The separation of construction and operation would 
allow greater competition among contractors, and the 
power to operate, if satisfactory terms could not be se- 
cured from the corporations, would place the city upon 
an equal plane with the corporations with which it was 
to contract, and relieve the city from being placed entirely 
at their mercy. The omission of the tax exemption pro- 
vision of the Act would allow the taxation of these valu- 
able franchises. Notwithstanding all these beneficent 
provisions the Commission opposed the bill, which was 
defeated in the Senate by a combination of Republicans 
and Democrats. 

Although the Elsberg bill failed of becoming a law, 
largely as a result of the efforts of the Rapid Transit 
Commission, the Gardner bill was passed by the Legisla- 
ture and signed by the Governor on May 25, 1905. This 
law amends the Rapid Transit Act so as to require the 
separation in rapid transit contracts of the items for pipe 
galleries from those for construction and operation of the 
roads themselves. This law also provides that when any 
construction contract is for less than ten million dollars, 
the Rapid Transit Commission may accept a forfeit de- 
posit of "such a sum less than one million dollars as the 
Board may determine, but in no case shall a deposit be 
less than ten per centum of the contract price of such 
construction. " 

This law also amends Section 35 of the Rapid Transit 
Act by omitting the requirement that franchises granted 
under Section 34 of the act shall be exempt from taxa- 
tion. 



68 the rapid transit commission. 

Different Methods in Which the Board May Grant 
Franchises. 

Under the Rapid Transit Act as it now stands there are 
two methods by which the Commission may provide for 
the construction and operation of railways. One 
method is prescribed in Section 32 of the Act, and the 
other method is prescribed in Section 34 of the Act. 

Section 34 authorizes the construction of a road with 
the money of the city, while Section 32 provides that the 
cost of construction shall be paid by the grantee of the 
franchise. The nature of the franchises granted under 
these sections is radically different, and it is necessary, 
therefore, to understand clearly the provisions of each 
section. 

Section 34 — Upo>n City's Money. 

Under Section 34 the Board may contract for the con- 
struction of railways "for such sum or sums of money, 
to be raised and paid out of the treasury of said city," 
and the person, firm or corporation so contracting to con- 
struct, maintain and operate said road shall annually pay 
to the city as rentals for the use of the road a sum not less 
than the annual interest upon the bonds to be issued by 
the city for the construction of said road and a further 
sum which shall be equal to a percentage of not less than 
one per centum upon the whole amount of said bonds ; 
provided, that in estimating such annual interest and ad- 
ditional percentage there shall be deducted from the 
amount of the said bonds the amount thereof issued to 
pay for rights, terms, easements, privileges or property 
other than lands acquired in fee. 



THE RAPID TRANSIT COMMISSION. 69 

Under this section the franchise shall be for " not less 
than thirty-five or more than fifty years/' and may also 
provide " for a renewal or renewals of the lease of said 
road upon the expiration of the original term and of any 
renewals of the same upon such terms and conditions as 
to said Board may seem just and proper" 

It will be observed that no time is specified to which 
renewals are limited, and it has been urged that under 
this statute the Commission may, by prescribing periods 
of renewals, practically grant franchises in perpetuity. 

In rendering the decision of a majority of the court in 
the case of the Sun Publishing Company vs. The Mayor, 
(152 N. Y., 257, 271), Judge Haight said: "Nor do we 
think that a lease in perpetuity is permissible under the 
provisions of the Act. If such was contemplated, why 
limit the terms and provide for renewal leases? The 
evident intention was that, at the expiration of each term, 
for which the road had been leased, a new contract should 
be made for the re-leasing of the road upon such terms 
and conditions as to the Board should then seem just, 
not upon such terms and conditions as shall be fixed at 
the time of entering into the original lease." It has been 
urged by the Committee on Franchises of the Citi- 
zens' Union, a majority of whom are lawyers, that this 
statement that the lease cannot be for more than fifty 
years, is purely dictum, and the Committee adds : "That 
the Commission so regards it is manifest from the fact 
that the lease subsequently awarded to the Belmont inter- 
est contains provisions for a renewal of 25 years beyond 
the 50 years which the court seems to hold the maximum 
permissible." My own view is, that whether the state- 
ment of the court be dictum or not, it is a sound and 



JO THE RAPID TRANSIT COMMISSION 

true construction of the statute. It is, however, 
clear that the Rapid Transit Commission do not con- 
sider the construction of the Court of Appeals as bind- 
ing upon them, and it is perfectly evident that when they 
made the Belmont-McDonald contract for 75 years they 
acted in direct violation of the expressed views of the 
Court of Appeals. If the construction of Judge Haight 
be correct, then the Commission had no right or lawful 
authority to fix the terms of renewals "at the time of en- 
tering into the original lease." Yet this is exactly what 
it did. Whatever the correct legal construction of the 
lease or the powers of the Commission may be, the result 
is precisely the same to the community. Whether the 
Commission have the right to do so or not, they are, as a 
matter of fact, making leases for more than 50 years. 

The contract made under this section "shall further 
provide" that "the city shall secure and assure to the 
contractor * * * the right to construct and to oper- 
ate the road as prescribed in the contract, free of all right, 
claim or other interference, whether by injunction, suit 
for damages or otherwise, on the part of any owner, abut- 
ting owner, or other person." 

Section 35 of the Rapid Transit Act, up to May 25, 
1905, provided that the person, firm or corporation oper- 
ating such a road as that described in Section 34 should 
be exempt from taxation in respect to his, their or its in- 
terest therein under said contract and in respect to the 
rolling stock and other equipment of said road. By the 
Gardner Act, this section was amended by striking out 
the provision as to exemption from taxation. 

A franchise granted under Section 34 possesses the 
following characteristics : 



THE RAPID TRANSIT COMMISSION. Jl 

1. The city furnishes the money for the construction 
of the road, provided the contractor pays the interest on 
the debt thus incurred and not less than one per cent, of 
the debt in addition. 

2. It cannot be for less than 35 years nor more than 
50 years. 

3. Renewals, however, may be granted '"upon such 
terms and conditions as to the Board may seem just and 
proper." 

4. The city indemnifies the contractor for loss sus- 
tained by suits for damages "or other interference. " 

Section 32. — At Lessee's Expense. 

Under Section 32 the Board may, from time to time, as 
in that section prescribed, grant a right or rights, fran- 
chise or franchises, or enter into a contract or contracts, 
upon the application to said Board, of "any railroad cor- 
poration owning or actually operating a railroad wholly 
or in part within the limits of the city in which the said 
Board has power to act, or of any railroad corporation 
now or hereafter incorporated and for the purpose so de- 
clared in its Articles of Association, of constructing and 
operating a tunnel railroad or railroads in the said city 
to be connected with any railroad or railroads within the 
State of New York or any adjoining State and thereby 
forming a continuous line for the carriage of passengers 
and property between a point or points within and a 
point or points without the said city." 

The Board may under this section determine the route 
or routes by which such corporation "may connect with 
other steam railways, or the sections thereof, or with 



7 2 THE RAPID TRANSIT COMMISSION. 

steam ferries, or may extend its lines within said city ; and 
may authorize any such railroad company to lay an addi- 
tional track or tracks * * * and to acquire terminals 
or other facilities necessary for the accommodation of the 
traveling public on any street or place, except the place 
known as Battery Park, on which said railway may be 
located." 

The Board may also fix ( i ) the location of the railways 
and the new tracks and facilities; (2) the plans of con- 
struction; (3) the time within which they shall be re- 
spectively constructed ; (4) the compensation to be made 
therefor to the city; (5) such other terms, conditions 
and requirements as to the Board shall appear just and 
proper. 

Nothing in this section permits the city to lend its 
credit or to furnish the money for the construction of the 
road. Under it the railroad corporation constructs the 
road with its own money. 

The provisions of this section as to compensation are 
exceedingly indefinite and leave the whole matter within 
the discretion of the Board. This clearly appears from 
the following quotation from this section, which provides 
that the Board shall prescribe "the compensation to be 
made therefor to the city by the railroad corporation to 
which the grant shall be made, and such other terms, con- 
ditions and requirements as to the said Board may appear 
just and proper." This requirement is subject to the 
further provision that every authorization and license shall 
be upon the condition that the railroad company, from 
the time of the commencement of the operation of any 
railroad under such authorization or license shall "an- 
nually pay to the said city a sum or rental/' and that the 



THE RAPID TRANSIT COMMISSION. 73 

amount of such sum or rental shall be prescribed for a 
period of 25 years and readjusted at the end of every 25 
years. 

The only provision as to compensation for the city is 
that such compensation shall be paid "as to the said 
Board may appear just and proper," and that from the 
time that operation commences "a sum or rental" shall 
be paid to the city, leaving the amount of such sum or 
rental to be fixed by the Board. 

Up to 1902 this section limited the time for which a 
franchise under it could be granted for a period of not 
more than 35 years. By Chapter 584 of the Laws of 
1902, this section was amended so as to prescribe no 
period of limitation as to the time for which the fran- 
chise may be granted. This amendment was effected by 
what was called the "Pennsylvania Bill," and under it the 
Board may grant franchises in perpetuity. The Board 
has been quick to take advantage of this power and has 
already granted the Pennsylvania, the New York & 
Jersey and the Manhattan and Hudson franchises in 
perpetuity. When this bill came before Mayor Low for 
his approval he evidently felt the need of offering some 
apology for his action in approving it. 

In accepting the bill on behalf of the City of New York 
on March 24, 1902, Mayor Low said : 

"No one in this community is more adverse to a per- 
petual franchise than am I, but candor compels me to 
recognize that there is a vital distinction to be drawn 
between such a franchise as the Pennsylvania desires and 
that, for example, of the Rapid Transit Subway. If, at 
the end of the period for which the latter franchise is 
granted, the city decides to operate the railroad itself, 



74 THE RAPID TRANSIT COMMISSION. 

the city takes the entire railroad. In the case of the 
Pennsylvania Railway Tunnel, on the other hand, were 
the city to assume it at the end of a limited franchise, the 
city would acquire what would be of comparatively little 
value, without the outside railroad systems connecting 
therewith ; while the railroad would lose what would be 
vital to it after its business had been adjusted for 50 or 

75 years to the use of such facilities." 

Such was the excuse by which an attempt was made 
to justify conferring power upon the Board to grant 
franchises in perpetuity! If the reason for granting a 
franchise in perpetuity was that it would be of little value 
to the city "without outside railroad systems connecting 
therewith, " then the act should have permitted a grant 
in perpetuity only in such cases. But the power to grant 
franchises in perpetuity is subject to no such limitation. 
It is an absolute power to grant perpetual franchises in 
any case when the franchise in granted under Section 
32. But it is not true that such a franchise as the 
Pennsylvania "would be of comparatively little value, 
without outside railroad systems connecting therewith. ,, 
The city is the gateway through which the Pennsylvania 
Railroad could avail itself of its "Outside Systems," and 
through which alone it could connect these systems. 

Thus a franchise granted under Section 32 possesses 
the following characteristics : 

1. It is to be constructed and operated at the expense 
of the corporation and does not require the city's money 
or affect the city's credit or borrowing capacity. 

2. It may be for any period which the Board may pre- 
scribe. 



THE RAPID TRANSIT COMMISSION. 75 

3. For the franchise the city receives such "sum or 
rental" "as to the Board may appear just and proper." 

4. It is declared by the statute to be subject to taxa- 
tion for state or local purposes. 

Which Method Is Most Beneficial to the City? 

A consideration of the characteristics of franchises 
granted under Section 34 and those granted under Sec- 
tion 32 leaves no doubt that it would be to the interest of 
the city that future franchises which are to be granted 
should be granted under Section 32 and not under Sec- 
tion 34. 

To the extent that the city is obliged to pay for con- 
structing the railroad it receives a poor return for its 
money, and the debt which it contracts to raise the money 
impairs its borrowing capacity and prevents the use of 
the city's credit for necessary improvements and for 
proper public enterprises which would be of profit to the 
city. 

Although by the Gardner Act, the exemption from 
taxation provision was omitted, it is nevertheless an 
entirely unsettled question how far franchises granted 
under Section 34 are taxable. Now that the United States 
Supreme Court has finally affirmed the Franchise Tax 
Law, which subjects railroad franchises to taxation, 
it is a matter of great importance that private 
corporations securing franchises under the Rapid 
Transit Act should be in all respects subject to 
taxation. The only return which the city receives 
for franchises granted under Section 34, in addition 
to the interest on the debt incurred to secure the 
money to pay for construction of the road, is a sum not 



j6 THE RAPID TRANSIT COMMISSION. 

less than one per cent, of such debt. Thus the corpora- 
tion securing the franchise, by taking less of the city's 
money, may reduce the amount which it is required to 
pay. Thus in the Brooklyn-Manhattan franchise, the 
company agreed to construct a road, which it was esti- 
mated would cost $9,000,000, and only required $3,000,- 
000 of the city's money. 

It would pay the contractor to agree to construct the 
road for only $1 of the city's money, because by so doing 
the contractor might thus be relieved of the obligation of 
paying any substantial compensation for the franchise. 
It is perfectly plain, therefore, that the city's interests 
demand that no more franchises should be given to pri- 
vate interests under the provisions of Section 34 of the 
Rapid Transit Act. 

Until the city has the legal power and financial ability 
to construct and operate its own railroads, those fran- 
chises, the operation of which are imperatively demanded 
by the needs of the public, should be granted only for 
short terms and upon adequate compensation under Sec- 
Hon 32 of the Rapid Transit Act. 

The Board has recently placed an exceedingly narrow 
construction upon the language of Section 32. This con- 
struction is to the effect that under Section 32 grants of 
franchises can only be made for the purpose of "author- 
izing extensions of the elevated railroads" except in the 
class of cases contemplated by the amendment of 1902, 
which referred to railroads originating outside the city 
and running to a point within it. 

In answer to a letter of the writer to the Board pro- 
testing against granting any more franchises to private 



THE RAPID TRANSIT COMMISSION. 77 

corporations under Section 34, Mr. Orr on behalf of the 
Board, said: 

"Again you say that a franchise granted under Section 
32 'may be for any period the Board may prescribe.' This 
is perhaps doubtful. The whole intent and purpose of the 
Section as originally adopted in 1891, was to enable the 
Board to afford immediate relief by authorizing exten- 
sions of the Elevated Railroads. In 1902 the Section was 
amended so as to apply to a very limited class of railroads 
originating outside the city and running to a point within 
it. Grants of franchises can only be made under Section 
32 in one or other of these two cases ; and as all the com- 
panies that could apply under this Section have rights in 
perpetuity for the remainder of their lines a grant for a 
less period would be of little value. It probably was not 
in the contemplation of the Legislature. But however that 
may be, the railways now under consideration by this 
Board do not (except, perhaps, in one or two instances) 
fall within either of the two classes described in Section 
32, and it is not perceived how franchises could be 
granted under it." 

From this statement, the inference is inevitable that it 
is the intention of the Board to grant the franchises now 
under consideration, "except, perhaps, in one or two in- 
stances" under Section 34, and that in these exceptional 
cases the Board contemplates granting the franchises in 
perpetuity. Both of these plans are opposed to sound 
public policy. First, because grants under Section 34 do 
not necessarily secure adequate compensation for the city, 
cannot be for less than 35 years and impair the borrowing 
capacity of the city, and secondly, because no franchises 
should be granted in perpetuity. Even if the franchise 



78 THE RAPID TRANSIT COMMISSION. 

granted is only an extension of a franchise which is enjoy- 
ed in perpetuity, the extension should not for this reason 
be granted in perpetuity. Nor does it at all follow,as stated 
by Mr. Orr, that because the original franchise is granted 
in perpetuity, a grant of an extension "for a less period 
would be of little value." A franchise permitting such an 
extension makes the original grant more valuable and the 
power which the city possesses to grant or withhold fran- 
chises for such extension should be used to compel conces- 
sions from corporations claiming that their original grants 
are in perpetuity. The main point of Mr. Orr's letter, as 
appears from the above quotation from it, is that except 
in a limited class of cases referring to railroads originat- 
ing outside the city and running to a point within it, fran- 
chises can only be granted under Section 32 for the pur- 
pose of "authorizing extensions of the Elevated Rail- 
roads." This construction is not warranted by the terms 
of the Section nor is it in accord with the construction 
which the Board has previously placed upon it. The 
language of the Section permits the Board to grant a 
franchise "upon application to said Board of any railroad 
corporation owning or actually operating a railroad wholly 
or in part within the limits of the city in which the said 
Board has power to act." Surely there is nothing in this 
language which limits the Board to "authorizing exten- 
sions of the Elevated Railroads." The only limitation 
imposed is that the grant shall be to a railroad corpora- 
tion "owning or actually operating a railroad wholly or 
in part within the limits of the city." Within this limita- 
tion there is a broad field within which the Board has 
power to act. That the Board has never before placed 
such a narrow construction upon their powers under Sec- 



THE RAPID TRANSIT COMMISSION. 79 

tion 32 as that expressed in Mr. Orr's letter of May 29th, 
1905, is evident from statements made in the report of 
the Board for 1 900-1 901. In that report referring to the 
Act of 1891 the Board, on page 13, says: 

"And by the thirty-second section of the same statute, 
a very large power was also conferred upon the Commis- 
sioners to grant additional franchises to existing railroad 
corporations. " 

And in the same report referring to the amendments of 
1894, the Board, on page 16, says: 

"The statute preserved to the Board the very important 
power to grant additional franchises to companies actu- 
ally operating railroads within the city." 

Thus it appears that not only does the statute dis- 
tinctly confer upon the Board the power to grant under 
Section 32 new franchises "to companies actually operat- 
ing railroads within the city," but the Board has itself 
asserted this power in its report for 1 900-1901, which is 
signed by Mr. Orr. 

Existing corporations wish to obtain new franchises 
under Section 34. Franchises granted under this Section 
are in every respect more advantageous to them. This fact 
cannot be denied ; the language of the statute is too plain 
to permit doubt as to this. That being the fact the Board 
of Rapid Transit Commissioners now contend, contrary to 
their formerly expressed opinion, that they have no 
power to grant these new franchises under Section 32, 
and Mr. Orr, referring to Section 32, says : "It is not 
perceived how franchises could be granted under it." 
The language of the Section will not support such a nar- 
row construction. New franchises that are to be granted 
to private companies, should be granted to companies 



80 THE RAPID TRANSIT COMMISSION. 

actually operating railroads within the city, for short terms 
upon adequate compensation to the city with the option to 
the city to revoke such grants at any time upon payment 
of an adequate indemnity. If a doubt exists as to the 
power of the Board to act under Section 32, the public in- 
terests would be best served by a temporary delay until 
such power can be clearly conferred rather than that the 
city's future interests should be now sacrificed by fran- 
chise grants made under Section 34. 

If the Board of Rapid Transit Commissioners desire 
to safeguard and protect the public interests they will in 
the future only grant franchises for short terms (never 
in perpetuity) upon substantial compensation to the city, 
under Section 32, reserving the right to terminate such 
leases at the option of the city upon payment of a just 
indemnity. 

Franchises Which the Board Has Already 
Granted. 

The first franchise which the Board granted was the 
Manhattan-Bronx franchise, which was granted under 
Section 34 and built with the city's money. The Man- 
hattan-Brooklyn franchise was also granted in the same 
manner, although the city was not required to pay the 
whole cost of construction. The Pennsylvania franchise 
and the New York and Jersey franchise, and the 
Hudson. and Manhattan franchise were granted under 
Section 32, or under the provision which requires that 
the road shall be constructed at the lessee's expense. 
The attitude of the Board in reference to the city's fran- 
chise wealth can best be ascertained by a consideration of 
the terms and provisions of each of these franchises. 



the rapid transit commission. 8l 

The Manhattan-Bronx Franchise. 

The Manhattan-Bronx franchise was the first fran- 
chise granted by the Rapid Transit Commission. The 
contract constitutes a printed volume of 180 pages, and 
was executed and delivered on February 21st, 1900. 
Under this contract the contractor agreed to construct 
and equip the Rapid Transit Railroad upon the routes 
and general plans of the Commission, to put it in opera- 
tion and to maintain and operate it under a lease from 
the city for the term of fifty years. The city agreed to 
pay thirty-five million dollars in case the whole of the 
road is constructed, and other specified sums in case it 
should determine to construct less than the whole. The 
city also agreed to give the contractor the right to con- 
struct and operate the railroad "free of all right, claim 
or other interference, whether by injunction, suit for 
damages or otherwise on the part of any abutting owner 
or other person." 

With reference to terminals, the contract provides that 
the city shall itself purchase the real estate for the ter- 
minals by condemnation or otherwise, and that the con- 
tractor is to construct them and receive the cost of such 
construction, with a profit of ten per cent. The total 
amount to be paid by the city it is stipulated shall not 
exceed the sum of $1,750,000. This amount which the 
city pays is in addition to the $35,000,000 paid for the 
cost of construction. The contract also provides that the 
city shall, if necessary, acquire lands for station and other 
purposes of the railroad in an amount not exceeding 
$1,000,000 and that if the necessary real estate should 
cost more than that sum, such excess is to be borne by 
the contractor. 



82 THE RAPID TRANSIT COMMISSION. 

The city leases to the contractor the whole railroad 
for fifty years from the time of completion and at the 
option of the contractor a new lease of the road is to be 
granted to him for a period of twenty-five years from the 
expiration of the lease provided for in the contract. 

The contractor agrees to pay as rental a sum equal to 
the interest, payable by the city upon the bonds issued 
by it to provide means for construction, and also one 
per cent, upon the whole amount of such bonds, except 
that for the first five years the payment is not to be made 
unless the contractor's profits amount to five per cent, 
a year. 

The contractor is, under the contract, entitled to 
charge for a single fare not more than five cents during 
the life of the contract and the franchise, rolling stock 
and equipment are exempt from taxation. 

In 1894 the Rapid Transit Act was amended so as to 
provide that the person, firm or corporation operating 
the road should be exempt from taxation upon his or its 
"interest under said contract, and in all respects to the 
rolling stock and other equipment of said road, but this 
exemption shall not extend to any real property zvhich 
may be ousted and employed by said person, firm or cor- 
poration in connection zvith the construction and opera- 
tion of the road/' 

This tax exemption was a very important amendment, 
as the original Act of 1891 provided that "Every corpo- 
ration organized under this act shall have its. principal 
office and be taxed on its property in the city where its 
railway or railways are situated/' 

In 1896 the act was still further amended so as to 
define the term "equipment." It declared that "The 



THE RAPID TRANSIT COMMISSION. 83 

equipment to be supplied by the person, firm or corpora- 
tion operating such road shall include all rolling stock, 
motors, boilers, engines, wires, ways, conduits and mech- 
anism, machinery, tools, implements and devices of every 
nature whatsoever used for the generation or transmis- 
sion of motor power, and including all power houses and 
all apparatus, and all devices for signalling and ventila- 
tion." 

It will be seen how this comprehensive definition of 
the term "equipment" extended the original tax exemp- 
tion. When the Commission made the Belmont-Mc- 
Donald contract, it seems that they attempted to extend 
further this exemption from taxation by assigning a new 
and still more comprehensive definition for the term 
"equipment." Although the amendment of 1894 distinctly 
provided that "this exemption shall not extend to any real 
property which may be owned by said person, firm or 
corporation in connection with the construction and 
operation of said road," the definition of the term "equip- 
ment" inserted in the Belmont-McDonald contract in- 
cluded "all real estate upon which any such power house 
shall stand, or which shall be necessary for the genera- 
tion or transmission of motive power, and all tools, im- 
plements, devices of every nature whatsoever used for 
such generation and transmission of motive powers, and 
also all apparatus and device for lighting, signalling and 
ventilation, whether such equipment be situate on or 
near or separate from the railway; provided, that the 
same may be used or intended for use in connection 
therewith, or for any of its purposes, and including all 
such equipment in existence at any time during or at the 
end of the term of the lease." 



84 THE RAPID TRANSIT COMMISSION. 

Under the contract the contractor is to furnish the 
equipment, but it is also provided that at the final termin- 
ation of the lease the city is to buy of the contractor the 
equipment at a price to be fixed by agreement or by 
arbitration. This contract was awarded to John B. Mc- 
Donald upon his offer to construct the road for thirty- 
five million dollars. McDonald also furnished a bond of 
one million dollars for the faithful performance of the 
conditions of the contract. August Belmont & Company 
organized the Rapid Transit Subway Construction Com- 
pany with a capital of six million dollars to enter into a 
contract with McDonald to promote the construction of 
the road, to furnish the security given by. him and to 
finance his undertaking. 

The length and termini of the roads leased by this con- 
tract are as follows : 

One route or line is about fourteen miles in length. 
Its termini are (i) a point at or near the intersection of 
Broadway and Park Row, in the Borough of Manhattan, 
City of New York, and (2) a point at or near the present 
Kingsbridge station of the New York & Putnam Rail- 
road, in the Borough of The Bronx, City of New York. 

This route was afterwards modified so as to commence 
at a point opposite the City Hall. 

The other route or line is about seven miles in length. 
Its termini are (1) a point of connection with the first 
above-described route on the Boulevard (or Broadway), 
in the Borough of Manhattan, at or near its intersection 
with One Hundred and Third street, and (2) a point at or 
near the intersection of Boston Road with Bronx Park, 
in the Borough of The Bronx. 

The contract also includes a branch or spur extending 



THE RAPID TRANSIT COMMISSION. 85 

from One Hundred and Forty-second street under Lenox 
avenue to One Hundred and Fiftieth street. 

The Interborough Rapid Transit Company was or- 
ganized April 25, 1902, to acquire and operate the fran- 
chise granted to John B. McDonald on February 21, 
1900. This corporation was approved by the Board of 
Rapid Transit Commissioners May 1, 1902. On August 
1, 1902, McDonald assigned his lease to the Interbor- 
ough Rapid Transit Company, and in July, 1902, the 
Board of Rapid Transit Commissioners consented to 
said assignment. 

Nowhere has the true character of the Rapid Transit 
Commission been better portrayed and the sham public 
ownership which the city has in the Belmont subway 
been shown than by Ray Stannard Baker in his admirable 
article on "The Subway Deal/' in McClure's Magazine 
for March, 1905. His description of the Belmont-Mc- 
Donald contract presents, in his agreeable style, with 
clearness and accuracy, the provisions of this complicated 
contract. He says : "Let us see on what terms the Sub- 
way is ours — a public possession. Let us put down, like 
boys trading marbles, what we give in one pile and what 
we get in another. We freely give the use of the streets, 
a permission of uncounted value. We provide all the 
money for building, we exempt the company from all 
taxation, we permit it to charge an unchangeable five- 
cent fare, no matter how cheaply the road can be oper- 
ated, and then we throw in (like the famous Dutch farm- 
er, who, when he sold the tail, threw in the entire hide) 
a contract which shuts us off from any real control of the 
subway for fifty years — and probably seventy-five years. 

On their part, what do Mr. Belmont and his associates 



86 THE RAPID TRANSIT COMMISSION. 

give in trade for this splendid possession? First, they 
pay the interest on the money which we supplied, about 
three and one-quarter per cent., and they pay one per 
cent, sinking fund — or much less than what they would 
have had to pay had they borrowed the money in the 
open market and undertaken the work as a private en- 
terprise. That is all they pay, everything. The ques- 
tion of equipment may be disregarded, because the city 
must purchase the equipment at the end of the contract 
term. As to the damage cases of adjacent property own- 
ers, which most corporations have to pay — why, the city, 
in its goodness, also engages to satisfy all of them. The 
city will not get, all told, as much as if the property were 
subject to ordinary taxation and no other payment made 
zvhatever to the city. By the old perpetual franchise sys- 
tem it was not impossible for the city to exercise some 
control over the street car companies, but Belmont has 
a contract by which, in effect, the city has actually con- 
veyed its right to govern. Of course, the subway is 
nominally owned by the city — nominally— at the end of 
seventy-five years. " 

In upholding the constitutionality of the Rapid Transit 
Act, Judge Barrett reviewed some of the objections to 
the law in the following language (Sun Publishing 
Ass'n. v. Mayor, 8 App. Div., 230, 247) : 

"The argument against the plan outlined above would 
appear to be about as follows : The city is to pay for the 
building of the road, and is then at once to lease it to the 
builder for a long period. The right to own the road and 
receive the income is the only valuable attribute of own- 
ership. The length of the lease is such as practically to 



THE RAPID TRANSIT COMMISSION. 87 

confer title in fee. The rent is merely nominal. Conse- 
quently the city builds the road, and substantially pre- 
sents it to the contractor. And so it "gives" its "prop- 
erty" to the contractor in violation of the constitution. 
This is the plaintiff's first position. There are a number 
of unjustifiable assumptions here, of which the chief one 
is that the city can receive no substantial return for its 
investment. The act does not provide that the contractor 
shall be entitled to the lease at a rent of the annual inter- 
est upon the bonds and the further sum of one per centum 
upon the whole amount thereof. That is the minimum — 
a check upon the action of the Commissioners. They 
are at perfect liberty to obtain as much more as may be 
obtainable. In this particular, as in many others, they 
are vested with a wide discretion. The plaintiff's argu- 
ment rests necessarily tip on the theory that the Board zvill 
not faithfully discharge its duties to the city, but will act 
entirely in the interests of the contractor — an inference 
which is purely gratuitous." 

This decision was, of course, rendered before the Mc- 
Donald-Belmont contract was made. What was at that 
time a "purely gratuitous" inference became afterwards 
an actual fact. The Board did act in the interests of the 
contractor rather than of the city. It did require the 
minimum compensation allowed by law. It did make the 
worst possible contract which by law it was authorized to 
make. While the reasoning of Judge Barrett in passing 
upon the constitutionality of the act may have been en- 
tirely sound, the very condition which he asserted could 
only exist in the event that "the Board will not faithfully 
discharge its duties to the city," viz. : that the minimum 
return should be made to the city is the condition which 
the Commissioners actually brought about. 



88 the rapid transit commission. 

The Brooklyn-Manhattan Franchise. 

On September n, 1902, the Board awarded the con- 
tract for the Brooklyn-Manhattan Railroad to the Rapid 
Transit Subway Construction Company. The contract 
in general follows the form of the Manhattan-Bronx con- 
tract. Under this contract the city agrees to pay $2,000,- 
000 for construction and $1,000,000 for terminals. The 
estimated cost of construction of the proposed road is 
about $9,000,000. The franchise is leased for thirty-five 
years instead of fifty years, as in the Manhattan-Bronx 
contract, and carries it with the privilege of a further ex- 
tension of twenty-five years with the city's consent. 

The contract provides for the construction of a subway 
connecting the Manhattan end of the East River Bridge 
with the Battery and by a tunnel under the East River 
with Flatbush and Atlantic avenue in Brooklyn. 

The contract permits the company to charge a five- 
cent fare during the life of the contract, but secures to 
the passengers the right to ride to all parts of the Brook- 
lyn-Manhattan and Manhattan-Bronx systems for a 
single fare. The contract also exempts the interest of 
the company from taxation. 

In return for these valuable privileges the city is to re- 
ceive as rental the amount of interest which the city it- 
self must pay upon the bonds issued to provide the cost 
of construction and a further annual sum of one per cent, 
upon the whole of the bonds. The contractor also pays 
rentals upon the amount paid by the city to acquire 
rights of way, even when not acquired in fee. 

Such is the contract to which the Board in their report 
for 1902 (page 3) refers as "this most favorable contract." 

All that can justly be said of this contract is that it is 



THE RAPID TRANSIT COMMISSION. 89 

not in all respects as bad as was the Manhattan-Bronx 
contract. The enormous profit which the company will 
derive from this contract, providing, as it does, for ex- 
emption from taxation, is evident from the fact that the 
company consented to construct the road, the estimated 
cost of which would be almost $9,000,000, for $3,000,000. 

The Pennsylvania Franchise. 

On October 9, 1902, the Rapid Transit Commission 
issued its certificate granting a franchise to the Pennsyl- 
vania, New York and Long Island Railroad Company. 
This franchise was approved by the Board of Aldermen 
on December 16th, and by Mayor Low on December 
23rd, 1902. This franchise gave to this corporation the 
right to construct and operate a New York underground 
station and a tunnel railroad under the North and East 
Rivers, connecting New York with New Jersey and the 
Borough of Queens. This franchise grants the right to 
build a two-track railroad from the New York boundary 
line in the North River to the Borough of Queens under 
Thirty-first street, Thirty-second street and from the ter- 
minal station at Thirty-third street and Seventh avenue 
under Thirty-third street and the East river to the Bor- 
ough of Queens, with the right to an additional track on 
Thirty-third street between Seventh and Fifth avenues. 
It also granted a right to maintain a terminal station oc- 
cupying the four blocks bounded by Thirty-first street, 
Seventh avenue, Thirty-third street and Ninth avenue, 
the lots on the east side of Seventh avenue, between 
Thirty-first and Thirty-third streets, and the under- 
ground portions of Thirty-first and Thirty- third streets, 
between Seventh and Eighth avenues and between 



90 THE RAPID TRANSIT COMMISSION. 

Eighth and Ninth avenues, the company having ac- 
quired the land included in such four blocks and lots on 
the east side of Seventh avenue. 

This franchise also granted the right to occupy for 
such terminal facilities all of Thirty-second street lying 
between the westerly side of Seventh avenue and the 
easterly side of Eighth avenue, and between the westerly 
side of Eighth avenue and the easterly side of Ninth ave- 
nue. The right to occupy for a subordinate station the 
underground portion of Thirty-third street, extending 
from a line 400 feet west of Fourth avenue to a line 600 
feet east thereof, was also granted. 

The franchise gives to the company the right to have 
along such route the necessary facilities for the opera- 
tion of passenger and freight trains, including telegraph 
wires and the various wires and cables for the distribution 
of power, heat and light. The franchise was granted in 
perpetuity. The compensation of the city for this enor- 
mously valuable franchise is fixed for 25 years as follows : 



First 10 yrs. Next 15 yrs. 

For the right to occupy land 

under the Hudson and East 

rivers outside of pier lines, a 

rental per annum of $200 $200 

For tunnel rights in Manhattan 

being 44,341 feet of single track 

at rental of 50 cents per lineal 

foot per annum for first 10 years 

and during the next 15 years 

$1 per annum per lineal foot. . . 22,179 44,341 



THE RAPID TRANSIT COMMISSION. 91 

For tunnel rights in Queens, be- 
ing 8,100 feet of single track at 
rental of one-half rates payable 
in Manhattan 2,025 4'°5 I 

For street rights on Thirty-first 
and Thirty-third streets, north 
and south of termini, a rental of. 14,000 28,000 

For secondary station at Thirty- 
third street and Fourth avenue.. 1,140 2,280 

For portions of Thirty-second 

street 36,000 36,000 



In all, per annum §75,535 $1 14,871 

If the route under Thirty-first street be availed of these 

amounts will be increased by 816,652.50 for the first ten 
years and by S33.305 for the next fifteen years. The 
amounts to be paid are to be readjusted at the end of 25 
years, and thereafter at intervals of 25 years. If the city 
and railroad company shall not agree upon the read- 
justment of rates, they are to be determined by the Su- 
preme Court 

Such is the franchise of which a committee of the 
Rapid Transit Commission, consisting of A. E. Orr, 
Charles Stewart Smith and Edward M. Grout, declare 
in their report : "Your Committee has no hesitation in 
saying that its terms are. on the whole, VERY GREAT- 
LY IN THE INTEREST OF THE CITY OF NEW 
YORK." 

The Committee in their report offer no excuse for 
accepting terms which secure to the city grossly inade- 
quate compensation, although the Committee seem to 
offer their apology to the railroad company for having 



92 THE RAPID TRANSIT COMMISSION. 

charged it the paltry and ridiculous sum of $200 a year 
in return for the rights under the North and East Rivers. 
In the same report the Committee present their apology 
to the railroad corporation in the following language : 

"The annual payment of $200 for the routes under 
the North and East Rivers outside of pierhead lines is 
more than nominal, though it is not important. It may 
be said in general that any one who bridges a navigable 
river or tunnels it so as to bring the opposite lands into 
easy communication without interference with naviga- 
tion confers great benefit upon the communities upon 
both sides of the river. Nevertheless, it is not practicable 
to certainly forecast the future, and your Committee 
has, therefore, deemed it wise to affirm the principle of 
compensation, although making the rate for the first 
period of twenty-five years so small as not to be a mate- 
rial burden to the Pennsylvania Company/' 

When one considers the terms of this great franchise 
grant and contemplates its enormous value, it becomes 
perfectly evident that a competent and trustworthy com- 
mission would have been more anxious to affirm the 
principle of adequate compensation than to see to it that 
no "material burden" should be placed upon the Penn- 
sylvania Company. 

Inasmuch as the Commission expresses its desire to 
affirm sound principles, it is greatly to be regretted that 
it did not in this franchise affirm the principle that public 
franchises should not be granted in perpetuity. 

The Rapid Transit Commission having thus com- 
pletely surrendered the city's rights in these valuable 
franchises to the Pennsylvania Company, the Commit- 
tee close their report with the following complimentary 



THE RAPID TRANSIT COMMISSION. 93 

reference to the representatives of the company: 

"Your Committee feels bound to say that the repre- 
sentatives of the Pennsylvania Company have presented 
their case frankly and that, although it was not always 
easy to bring them to see the interest of the city from 
the standpoint of those whose duty it was to represent 
the city, nevertheless, they have been neither illiberal 
nor unreasonable/' 

This is the report which was accepted by the Commis- 
sion and upon which this franchise was granted. The 
future usefulness to the city of a Commission which re- 
gards the Pennsylvania Company's contract for this fran- 
chise as liberal and reasonable ought to be perfectly ap- 
parent to every intelligent citizen not a member of the 
Commission or connected with a public service corpora- 
tion. 

The New York and Jersey Franchise. 

The certificate for this franchise was granted by the 
Rapid Transit Commission July ioth, 1902. It was ap- 
proved by the Board of Aldermen on December 16th 
and by Mayor Low on December 23, 1902. This fran- 
chise granted to the New York and Jersey Railroad 
Company the right to construct and operate a tunnel 
railroad consisting of two tracks running from the bound- 
ary line between the States of New York and New Jer- 
sey under the Hudson River opposite the foot of Morton 
Street in the Borough of Manhattan and running east- 
erly under the river and dock and bulkhead property 
to West Street, under West Street to Greenwich Street 
and northerly under Greenwich Street to a terminal in 



94 THE RAPID TRANSIT COMMISSION. 

the westerly half of the block bounded by Christopher, 
West Tenth, Greenwich and Hudson Streets. 

This franchise also carried with it the right to main- 
tain a terminal and station in the block bounded by 
Christopher, West Tenth, Greenwich and Hudson 
Streets and to occupy the underground portion of Green- 
wich, Christopher and West Tenth Streets, contiguous 
to such terminal station, and also the portion of Green- 
wich Street between Barrow Street and such terminal 
station for tracks, sidings and connections. 

The company also acquires, under this franchise, the 
right to maintain and use along such route the necessary 
facilities for the transportation of persons and property, 
including telegraph wires and the various wires and 
cables for the distribution of power, heat and light. 

This valuable franchise is, by the terms of the grant, 
given in perpetuity upon absurdly inadequate compensa- 
tion. 

The compensation which the city is to receive under this 
franchise is shown by the following schedule : 

First 10 yrs. Next 15 yrs. 
For entrance of river right per 

annum $100 $100 

For terminal rights per annum 
under dock property and streets 
in Manhattan Borough, being 
4,125 feet (partly estimated) 
of single track, at the rate of 
50 cents per lineal foot for first 
10 years and $1 per lineal foot 
during next 15 years 2,062.50 4J 2 5 



THE RAPID TRANSIT COMMISSION. 95 

For street (or vault)) rights in 

Greenwich, Christopher and 

West Tenth streets contiguous 

to terminal station, being 29,31 1 

square feet, at 11 cents per 

square foot per annum for 10 

years, or at 22 cents for next 

15 years 3,224.00 6,448 

Additional payment for terminal 

rights under streets 9,000.00 15,000 

In all per annum .$14,386.50 $25,673 

The amounts of the charges are to be readjusted at the 
end of twenty-five years and thereafter at intervals of 
twenty-five years. 

The last item in the above schedule for additional pay- 
ment for tunnel rights under the streets is declared by 
the contract to be three per cent, of the gross receipts of 
the New York portion of the railroad company for ten 
years and five per cent, for the next fifteen years. As a 
matter of fact it is no such thing, as the gross receipts 
were not known or estimated, but the franchise arbitrarily 
fixes these gross receipts at $300,000, whether they shall 
in fact be less or more. 

The New York and Jersey Railroad Company ac- 
quired the rights and property of the old Hudson Tun- 
nel Railroad Company, including a right alleged to have 
been acquired by deeds from the State of New York to 
construct a tunnel under the bed of the Hudson river. 
The old company had already constructed over four 
thousand feet of tunnel underneath the river before this 
new franchise was conferred. 



96 THE RAPID TRANSIT COMMISSION. 

A committee of the Commission, consisting of A. E. 
Orr, Edward M. Grout and Charles S. Smith, made the 
report to the Commission upon which this franchise was 
granted. 

In this report the committee refers, as usual, with much 
satisfaction, to "its long and careful consideration" of the 
proposed grant in perpetuity, while at the same time 
professing that the Board is on general principles op- 
posed to such grants. 

In this report the committee says : 

"The railroad is to be maintained and operated in the 
States of New Jersey and New York, and any severance 
of the railroad at the western boundary line of the city is 
impracticable. The public policy against grants in perpe- 
tuity, in which the Board believes, is obviously, there- 
fore, not applicable to the franchise now proposed. The 
short right of way leading to the tunnel already owned 
by the applicant company in perpetuity, it is plain, would 
never be of use to any enterprise except that company or 
its successor in ownership of the tunnel. A readjustment 
of rental charges at intervals of twenty-five years will in 
this case give the city all of the practical advantages which 
would be given by a limit of the life of the grant." 

This is practically the same excuse as that urged for the 
Pennsylvania franchise, and which Mayor Low advanced 
when he signed the "Pennsylvania Bill." 

It is not true that the public policy opposed to grants 
in perpetuity is "obviously * * * not applicable" to 
this case simply because the franchise granted terminates 
at the boundary line of the city. The fact that the com- 
pany owns a franchise in another State which goes to the 
boundary line of the city, makes the permission to enter 



THE RAPID TRANSIT COMMISSION. 97 

the city, and thus connect with the franchise granted in 
another State all the more valuable. The franchise granted 
in the other State may be of little value unless a franchise 
can be obtained permitting the owners to enter the city 
limits. The desirable location, with which connection 
must be made is in the City of New York, and the city's 
representatives in disposing of the city's rights should 
consider this factor in estimating the value of the fran- 
chises which they grant. They should also consider that 
with the growth of the city these rights will become very 
much more valuable, and they should, therefore, abandon 
the vicious practice of granting away the people's rights 
in perpetuity. 

The plea that a, franchise which connects with a line 
operated under a franchise granted in another State, is of 
little value, is a very insufficient excuse for making grants 
in perpetuity for inadequate compensation. 

Nor does the provision requiring a readjustment of 
rates at intervals of twenty-five years secure "all of the 
practical advantages which would be given by a limit of 
the life of the grant," as the Commission asserts. 

Such grants make public ownership by the city im- 
possible except upon payment of compensation which 
represents the value of a franchise granted in perpetuity. 
Thus, if the city desired to acquire the ownership of such 
a franchise, the measure of compensation which it would 
be compelled to pay would be much greater than if the 
franchise had been granted for a limited period. Grants 
in perpetuity are in themselves contrary to public policy ; 
they not only deprive the people of this generation of 
their rights, but they rob the generations of the future. 

It may be that the people of another generation will 



98 THE RAPID TRANSIT COMMISSION. 

not take the same view of these franchises which con- 
nect with other railroad systems in other States, which 
the present Rapid Transit Commission take, and if they 
do not, they will find themselves much embarrassed by 
the actions of the Commission in making grants in perpe- 
tuity. 

The only theory upon which it seems possible to under- 
stand the extraordinary policy pursued by the Rapid 
Transit Commission in disposing of the franchise wealth 
of the city is that the Commission is under the impres- 
sion that any corporation which consents to accept and 
operate a public franchise confers a benefit upon the pub- 
lic. 

Thus, in reference to the New York and Jersey fran- 
chise now under consideration, the Committee in their 
report upon it use the following language, which clearly 
.shows the spirit in which the Commission act : 

"The reasons determining the opinion of the Committee 
as to most of the provisions of this franchise are the same 
which the committee submitted to the Board, and which 
determined its action, in the case of the franchise recently 
granted the Pennsylvania, New York and Long Island 
Railroad Company. They do not, therefore, need to be 
repeated. In this case, as in that, it is clear that our true 
policy is to welcome every undertaking of responsible 
companies to increase the facilities for transportation of 
passengers or goods into the city! 3 

The corresponding benefits which the city confers upon 
the companies and the enormous profits which it thereby 
permits them to make, seem not to be worthy of con- 
sideration by the Board. 



the rapid transit commission. 99 

The Hudson and Manhattan Franchise. 

The Hudson and Manhattan franchise was granted by 
the Board of Rapid Transit Railroad Commissioners on 
November 24, 1903. 

This franchise authorizes the Hudson and Manhattan 
Railroad Company to construct and operate a tunnel rail- 
road with two tracks from Jersey City, beneath the Hud- 
son river, passing up Cortlandt street, thence through 
private property on the west side of Church street, where 
the station is to be located, thence westerly under Fulton 
street to the river, and so return to Jersey City. The 
franchise also authorizes the construction of a foot sub- 
way from the station at Church street under Dey street 
to connect with both platforms of the Rapid Transit sta- 
tion at Broadway and John street. 

THE FRANCHISE IS GRANTED IN PERPE- 
TUITY UPON GROSSLY INADEQUATE COM- 
PENSATION. For the right to enter the city the com- 
pany is to pay $100 per annum for 25 years. For rights 
under dock property the company is to pay at 50 cents per 
foot per annum for 10 years and $1 per annum for the 
next 15 years. For street or vault rights in Cortlandt, 
Dey and Fulton streets, contiguous to terminal stations, 
the company is to pay at the rate of 40 cents per square 
foot per annum for 10 years and 8c cents per square foot 
per annum for the next 15 years. 

For tunnel rights under the streets the company is to 
pay $9,000 per annum for 10 years and $15,000 per annum 
for the next 15 years. 

The total estimated sum per annum which the city 
would receive is, for the first 10 years, $13,040.80; for the 

LafC. 



100 THE RAPID TRANSIT COMMISSION. 

next 15 years, $22,993.60. 

The contract provides that, "Such annual sum of $9,000 
is three per cent., and such annual sum of $15,000 is five 
per cent, on the gross earnings of the New York portion 
of said railroad, said gross earnings being estimated and 
fixed for the purpose of this grant at three hundred 
thousand dollars ($300,000) per annum, for the period of 
25 years from the date on which the Tunnel Company 
shall first commence the actual operation of the railroad. " 
This sum of $300,000 is a mere guess,, and, of course, 
bears no relation to any true estimate as to what the gross 
earnings of the company will be for the next 25 years. 
.The contract also provides that the annual amounts to 
be paid by the company shall be readjusted at the end 
of the first period of 25 years, and shall thereafter be re- 
adjusted at intervals of 25 years. 

The Committee of the Commission reporting upon the 
application for this franchise commented upon the fact 
that this franchise follows closely the franchise already 
granted to the New York and Jersey Railroad Company. 

The New York and Jersey franchise is used as a prece- 
dent to be followed, and the Committee in their report to 
the Commission says : 

"Substantially the same justification for a perpetual 
grant exists in this case as existed in the New York and 
Jersey case." 

Pipe Galleries. 

Closely related to the transit subways is the question 
of pipe galleries for New York. There can be no ques- 
tion but that the interest of the city requires that with 



THE RAPID TRANSIT COMMISSION. IOI 

the construction of railway tunnels, galleries should be 
built over or at the side of such tunnels for the purpose 
of accommodating the various gas and sewer pipes, elec- 
tric conduits, telegraph and telephone wires and pipes 
for compressed and hot air. The construction of such 
galleries for this purpose would mean much for the City 
of New York. It would very greatly facilitate the work 
of keeping these pipes and conduits in proper repair 
and would prevent the disturbance of the street sur- 
faces. The constant tearing up of the street pavements 
which results from the present system affects the health 
and convenience of all the people of the city. In addi- 
tion to this, the present system involves very great ex- 
pense, necessitating, as it oftentimes does, the destruction 
of new pavements and their being replaced. It has been 
said that the almost perfect condition of the Paris streets 
is largely the result of the fact that disturbances of the 
street surface is practically eliminated. At present the 
old pipes that are buried in the streets interfere with 
street excavations, proper inspection is difficult, some- 
times impossible, and thus the need of repairs cannot 
be discovered until leakage has resulted or an accident 
has taken place. Until 1905 no specific power was con- 
ferred upon the Rapid Transit Commission to provide 
for pipe galleries in the construction of subway rail- 
roads. Such galleries were not, therefore, provided for 
in the contract for the Manhattan-Bronx franchise. Not- 
withstanding this fact, it was suggested to the contractor 
that such galleries be constructed and paid for by the 
city as extra work. This suggestion was accepted and 
the work of construction upon them was actually be- 
gun. All of the private franchise-owning corporations, 



102 THE RAPID TRANSIT COMMISSION. 

however, appreciated that the construction of these gal- 
leries would very greatly augment the city's rights and 
afford the city an opportunity of protecting itself against 
extortion practiced by the private companies. There- 
fore, the contractor, although he had agreed to construct 
such galleries, withdrew from his part of the undertak- 
ing, and so anxious was he that the galleries should not 
be built that he assumed the expense of the work already 
done upon them. This hostility to the pipe galleries 
was also manifested by the Commissioner of Sewers un- 
der the Van Wyck administration, even before the con- 
tractor withdrew his support. This commissioner ob- 
jected on the ground "that it would be to the best inter- 
ests of both departments (sewer and water supply) if the 
pipe galleries were not built at all and the sewer and 
water mains were laid in the usual manner." The reason 
assigned by the contractor for withdrawing from the 
support of the plan to build the galleries was the possible 
danger to the subway in case of leaks and the effect of 
possible explosions of gas in the pipe galleries. An in- 
vestigation showed that this danger did not exist and 
that this reason was assigned merely for the want of a 
better one. The real reason, doubtless, was that the fran- 
chise-owning corporations desired the city to remain in 
a dependent position. 

The work of construction of pipe galleries was finally 
stopped when the preliminary steps were taken by an 
injunction, issued upon the ground that the subject was 
within the jurisdiction of the Commissioner of Water 
Supply, Gas and Electricity. 

The Gardner Act, which was passed in 1905, conferred 
power upon the Rapid Transit Commission to provide 



THE RAPID TRANSIT COMMISSION. 103 

for the construction of pipe galleries in connection with 
subway railroads. To effect this change in the law was 
one of the principal objects of the Gardner law, but it 
is now contended by the franchise-owning corporations 
that the law does not enlarge the powers of the Rapid 
Transit Commission, but merely provides what shall be 
done with pipe galleries when they are built. This con- 
tention is interesting, as showing the policy of obstructing 
all improvements and progress which the franchise-own- 
ing corporations, which now have the city in their grip, 
persistently and consistently pursue. Notwithstanding 
the fact that the Gardner Act was supported by the Rapid 
Transit Commissioners and urged by them as a substi- 
tute for the Elsberg bill, the Commission has apparently 
failed to provide for the construction of pipe galleries in 
connection with the proposed extensions of the rapid 
transit systems. 

In reference to this matter the Municipal Journal says : 

"What the Commission will do in this matter is prob- 
lematical. It is hoped that it will accept the opportunity 
to obtain something which cannot fail of lasting benefit 
to the city as well as to the citizens who are universally 
oppressed by overcharge for light, power and telephone 
service. The ownership and operation of pipe galleries 
by the city would break the backbone of the telephone 
monopoly and bring about a reduction of the price of 
electric current/ for power and lighting purposes, inas- 
much as such ownership and operation would admit of 
real competition. " 

Commenting upon this statement an editorial in the 
New York Times of June 3, 1905, says : 

"This is a guarded expression of conservative opinion. 



104 THE R Ap ID TRANSIT COMMISSION. 

If advised that its powers are still incomplete, and that 
there is the possibility of being restrained in their exer- 
cise by an application for an injunction, the Commssion 
should ask the Governor to include in an emergency bill 
this subject in the business to be referred to the special 
session ; or if this cannot be done, it should go ahead with 
pipe galleries in connection with every foot of subway 
designed, and not proceed beyond that point until it gets 
the authority it desires to render the public this large 
and lasting service. To neglect it will subject the Com- 
mission to merited censure for failing to take advantage 
of an opportunity which cannot occur again. ,, 

From the attitude which the Commission has always 
maintained in dealing with the franchise-owning corpor- 
ations, it is not clearly apparent that the city's rights in 
this respect are altogether safe. 

The present situation as to pipe galleries and the atti- 
tude of the franchise-owning corporations in regard to 
them is clearly apparent from the following statement 
by James C. Bayles, M. E., Ph. D., in his excellent little 
bulletin issued by the Municipal Art Society on, "Pipe 
Galleries for New York/' in which he says: 

"The history of the movement to provide pipe galleries 
for the principal streets and avenues of New York is 
well calculated to discourage further effort in this direc- 
tion. It has heretofore been impossible to awaken any 
intelligent or sustained public interest in the subject, and 
this apathy has been taken advantage of by corporations 
jealous of any encroachment upon what they have come 
to regard as their ownership of the streets of New York 
and their right to dig in them as. freely as one might 
in his own garden, to defeat legislation, deny appropria- 



THE RAPID TRANSIT COMMISSION. IO5 

tions and restrain by injunctions the effort^ of the Bor- 
ough President to do something practical. In a very 
quiet and discreet way these corporations are very potent 
forces in defeating every movement in the direction of 
reforms which they do not initiate, and the results of 
which they will not own and control. We shall never 
have even the beginning of a pipe gallery system in New 
York until it is demanded by public opinion in terms 
so unmistakable that it is not susceptible of misinter- 
pretation and so emphatic that the Mayor, Aldermen 
and the members of the Board of Estimate and Appor- 
tionment will not deem it safe to 'smiling put the ques- 
tion by/ " 

Policy and Methods of the Board. 

The people of this city have no realization of the actions 
of the Rapid Transit Commission, or appreciation of the 
imminent danger which exists that the Commission will 
in the next few years, if not prevented, give away in per- 
petuity, or for a long term of years, the most valuable 
franchises which the city possesses. The great means of 
transportation in the immediate future for the City of 
New York will be by subway railroads. These are en- 
tirely under the control of the Rapid Transit Commission. 
The rights to construct and operate these railroads consti- 
tute the most valuable franchises in the world. Over these 
the people of this city have no control whatsoever as long 
as the Rapid Transit Commission enjoys its present pow- 
ers. The Commission, whatever may have been its in- 
tentions, have served well the traction interests and have 
miserably failed to protect the interests of the city. One 
of the reasons why the people fail to appreciate their 



106 THE RAPID TRANSIT COMMISSION. 

present danger from the Commission is because of the 
manner in which the press and public men have chosen to 
speak of it. It is non-partisan, and, therefore, supposed to 
be worthy of respect and confidence. Nothing could be 
more absurd. The gas companies and the traction in- 
terests are wholly non-partisan. As the late Jay Gould is 
reported to have said that the Erie Railroad was Demo- 
cratic in Democratic States and Republican in Republican 
States, so these powerful interests in the city are Demo- 
cratic or Republican as serves their private interests best. 
Because the Commission, therefore, is non-partisan in 
character does not in and of itself prove its usefulness to 
the city or that it acts wholly for the city's interest. The 
fact that the members of the Commission hold office for 
life and are appointed by the Legislature does not insure 
the wisdom of its action. It shows merely that its whole 
constitution is undemocratic and in direct violation of 
every principle of Home Rule. 

It is high time that the true character of this Commis- 
sion should be known, and that the people should appreci- 
ate the contracts which it has already made giving away 
the city's franchises, and the power which it at present 
possesses to foreclose the rights of the people in the valu- 
able franchises which they still possess. 

Some of our editors and public men seem inclined to do 
what they can to convert the Commission — in the public 
mind at least — into one of our "sacred institutions," 
which should not even be criticised. Thus the Outlook 
for April, 1905, commenting editorially upon the Commis- 
sion, says : 

"'The city owes a great debt to the gentlemen who con- 
stitute the Rapid Transit Commission. They have put 



THE RAPID TRANSIT COMMISSION. 107 

their time and their business sagacity at the service of the 
municipality, with a public spirit not often paralleled, and 
with resultant benefits to New York which, we think, have 
never been equalled in any American city. The best re- 
ward for a great service is an opportunity to render a 
still greater service. The Outlook appeals to the mem- 
bers of the Rapid Transit Commission to make their 
proved sagacity again available for the public, and to con- 
trive some method by which the new subways can be 
built for the city and owned by the city ; and, at whatever 
cost of temporary inconvenience, to use all their power 
and to use all their deservedly great influence against 
any scheme, however fathered or supported, which threat- 
ens to make the underground highways of the metropolis 
private property." 

In reading this eulogy it must not be forgotten that 
the chief claim to public gratitude which the Commission 
has is that it made the McDonald-Belmont contract, and 
that although the city has a reversionary interest in the 
present subway, which it may enjoy after 75 years, yet it 
is popularly said to "own the subway." The nature of 
that "ownership" has already been considered. This is 
the contract to which the Outlook refers as having been 
secured by the "business sagacity" of the Commission, and 
as a result of its "public spirit." And having given to 
Mr. Belmont this valuable privilege upon terms wholly 
advantageous to him, we are to reward the Commission. 
And in giving the reward we are to remember that "The 
best reward for a great service is an opportunity to ren- 
der a still greater service." Having given away the city's 
most valuable privileges, they are to proceed in the same 
spirit and give away other valuable rights which the city 



108 THE RAPID TRANSIT COMMISSION. 

possesses, upon the same terms, as rapidly as possi- 
ble. It does not require a prophet to foresee that unless 
the Rapid Transit Commission is at once prevented from 
giving away the franchises for the new subways, which 
have already been planned, Mr. Belmont will get 
them upon practically the same terms as he now enjoys 
the present subway. It is notorious that the Board of 
Aldermen, whatever their intentions may have been, have 
in fact delivered the rights and franchise wealth of 
the city into the hands of private corporations. The 
Rapid Transit Commission, whatever their intentions 
may have been, judged solely by their actions, have done 
the same thing. The opportunity to do more damage and 
to strip the city of those franchises which it still possesses 
will be taken advantage of unless the people at once pre- 
vent it. The Rapid Transit Commission have had since 
1894 to give New York real rapid transit. They have 
utterly failed. As the result of their efforts we have one 
subway railroad in operation and others planned. The 
one we have is in the hands of a private corporation for 
75 years, exempt from taxation, with a guarantee that the 
fare will not during that time be reduced below five cents. 
It was built by public money and the public have no im- 
mediate rights in it. Even this subway railway, the only 
one we have in operation, as the result of the Commis- 
sion's labors, has only just been completed. The delay 
was caused by the inefficiency of the Commission, the 
crookedness of politicians and obstacles purposely inter- 
posed by the street car companies. Satisfied with the 
dividends they were getting, those who controlled the 
street car companies not only would not build the sub- 
way, but were determined that the city itself should not 



THE RAPID TRANSIT COMMISSION. IO9 

build it. There was never a doubt as to the personal 
honesty of the members of the Commission. It was be- 
cause they possessed this virtue that the public have ex- 
pressed confidence in them. While we commend them 
for their honesty, we cannot but deplore their lack of pro- 
gressiveness and inability to cope with the forces to which 
they were opposed, and the unfortunate state of mind in 
which they always seem to have acted, which assumes 
that the public interests and those of private corpora- 
tions are not antagonistic. 

It may truthfully be urged that the present subway is 
of great benefit to the city. It has demonstrated beyond 
all question that subway railroads in Xew York are a suc- 
cess and the most practical method of meeting the present 
need for increased transit facilities. The city has learned 
a valuable, if very expensive, lesson from the Belmont 
subway. All this is true, and if the Rapid Transit 
Commission gave any evidence of profiting by this ex- 
perience the Commission might still be entitled to some 
measure of public confidence. 

The only defense urged on behalf of the Rapid Transit 
Commission is the plea that all these contracts which 
they have made have been authorized by law. In the first 
place this is not true, as is shown from the facts that the 
Belmont-McDonald contract granted a privilege of a 25- 
year renewal at the time of making the original lease, and 
that the attempted exemption from taxation of real estate 
of the company used in connection with the construction of 
the subway was unauthorized. In the second place, even if 
the contracts which the Commission have made were not 
contrary to law, that fact did not justify the Commission 
in making the worst possible contract which the law would 



110 THE RAPID TRANSIT COMMISSION. 

tolerate. The Commission should have made the best 
possible contract under the law. Nor does this plea jus- 
tify the Commission in laying out new subways in such 
a way as to promote the interests of the traction com- 
panies instead of the city, nor is it any excuse for the 
activity which the Commission has shown in the endeavor 
to prevent the existing law being changed and its defects 
remedied. 

In reading the annual reports of the Board of Rapid 
Transit Commissioners, one cannot but be impressed with 
the high opinion which the Commissioners and their 
former Chief Engineer entertain of themselves and all 
their works. Notwithstanding their dilatory actions, and 
the manner in which they have been imposed upon by 
railroad corporations, and notwithstanding their deter- 
mination not to lay out any railway which should com- 
pete with existing surface lines, and their lamentable sur- 
render of valuable rights in perpetuity for inadequate 
compensation, the reports of the Commission and of the 
Chief Engineer constantly congratulate the city and its 
people upon the public benefits secured by their efforts, 
and frequently refer to its members as having "dedicated" 
themselves to the public service. Judging by results, 
from the standpoint of the city's interests, the "dedica- 
tion," which seems to have been complete and absolute, 
has been solely in the interest of the public service cor- 
porations. 

Even though the city may not be able, as yet, to under- 
take the construction of new subways, the policy of the 
Commission seems to be to give away the franchises at 
once. Thus Chief Engineer Parsons (now in the employ 
of the Interborough Company), in submitting his alleged 



THE RAPID TRANSIT COMMISSION. Ill 

"Comprehensive Plan" for Manhattan and The Bronx, 
says: 

"All of these lines herein suggested should, if approved 
by the Board, be placed under construction as soon as 
the necessary consents can be obtained, and the terms of 
the contract drawn up ; and it is hoped that they will be 
sufficient to provide for the Boroughs of Manhattan and 
The Bronx for some years to come." 

In other words, the city is to be stripped of its valuable 
franchises in many of the most important streets and 
avenues as rapidly as possible. Even though the city may 
not be able to have these railroads immediately con- 
structed and will not receive the benefits of their use for 
some time in the future, no time is to be lost in taking 
them away from the city, and the city's rights in them are 
to be forever foreclosed just "'as soon as the necessary 
consents can be obtained," and as quickly as "the terms 
of the contract can be drawn up." 

Until the Manhattan-Bronx subway demonstrated the 
success of underground transportation the Commission 
delayed action, but now that the valuable nature of this 
method of transportation has been demonstrated, private 
corporations are losing no time in making applications 
for franchises, and the Commission is granting their ap- 
plications with a speed that is astounding in a Commis- 
sion, whose actions in the past have been so deliberate. 

The Rapid Transit Commission have already prepared 
plans for new subways, the franchises for which will soon 
be contracted away. These plans are laid out with a view 
not of safeguarding or promoting the city's interests, but 
solely in the interest of the existing traction companies. 



112 THE RAPID TRANSIT COMMISSION. 

The plans of the Rapid Transit Commission have been 
discussed by the Committee on Plans of the Municipal 
Art Society of New York. The pamphlets which this so- 
ciety have issued are among the most valuable contribu- 
tions which have yet been made to the literature of this 
subject. In a communication to the Commission, dated 
January 12, 1905, the Committee describes the plans 
which the Commission have adopted, in the following lan- 
guage: 

"The plans recently proposed by your Chief Engineer 
have the merit of being definite, if not comprehensive, in 
character. In Manhattan they alternately provide for the 
convenience of the Interborough and the New York City 
Railway Companies, but do not meet the needs of the 
city. In The Bronx they provide for three separate ele- 
vated extensions of the Interborough system, and for a 
short spur, being a continuation of the proposed Lexing- 
ton avenue line to One Hundred and Forty-ninth street, 
which is available for both companies. In Brooklyn they 
provide for the extension of the Interborough system by 
way of the Eastern Parkway and also via Fourth avenue, 
and for a possible new route by way of a proposed Gov- 
ernor's Island tunnel and the Battery." 

Such a plan if carried out can result onl) in enriching 
the traction companies at the expense of the city, and 
compelling the city to part with its franchises in the future 
without being able to get a fair value for them. Com- 
menting upon the folly and waste to the city of the policy 
of laying out new lines in the interests of the traction 
companies, the Committee of the Art Society says: 

"The city is not dependent upon existing transit cor- 
porations ; they are dependent absolutely upon it, and at 



THE RAPID TRANSIT COMMISSION. II3 

the present time upon you (the Rapid Transit Commis- 
sion). Underground transportation of passengers, gas 
and electricity in the interests of the community will be 
determined by the new subways and their control. 

"With the exception of the subway now built, the city 
is in complete possession of the possible underground 
highways. New subways should not be made dependent 
upon those existing or upon the private surface lines of 
the city, but should be planned with a view to their most 
effective and profitable operation by other corporations 
as well/' 

Further commenting upon the plans of the Commis- 
sion, the Committee says : 

"The plans proposed by Mr. Parsons are a particu- 
larly frank statement, in transit engineering terms, of a 
proposition to surrender the control of Rapid Transit 
throughout the greater city for generations to come." 

The Municipal Art Society have proposed a compre- 
hensive plan of securing rapid transit in which lines are 
laid out solely with a view to promoting the best interests 
of the city and the convenience and welfare of its popula- 
tion. This plan differs from that of the Rapid Transit 
Commission in that it proceeds upon the principle that 
the city is not at the mercy of the transit corporations, 
but that the future success and profit of the transit cor- 
porations depends upon the lines which the city shall 
adopt for its new subways. 

The plan of the Rapid Transit Commission is based 
upon the directly opposite principle that the city is en- 
tirely dependent upon the transit corporations and that it 
must authorize the building only of such new subways as 
the interests of these corporations shall require. The plan 



114 THE RAPID TRANSIT COMMISSION. 

suggested by the Art Society is worthy of the most care- 
ful consideration. At present the city holds the key to the 
situation if its rights are not betrayed by the Rapid Tran- 
sit Commission. 

The franchise rights to operate under the streets are 
all, with the exception of those granted by the franchises 
already referred to, still the property of the city. For a 
century the city's rights in and over the streets have been 
exploited, and private corporations still possess many 
legal privileges in them. But substantially the whole 
sub-surface of the city's streets still belongs to the city. 
The Committee of the Art Society sums up the situation 
in saying that : 

"Superficially, the city has been exploited in private in- 
terests; underground New York is still a virgin plane, 
not even bounded by the rivers and under practically 
complete municipal control." 

The new subways must be built in the immediate fu- 
ture. There are three attitudes which the city may take 
fn reference to them : 

ist. That of the Rapid Transit Commission of giving 
them away in perpetuity or for long terms and upon con- 
ditions substantially similar to those upon which they 
granted the Belmont subway franchise. 

2d. That of leasing them for short terms to private cor- 
porations and attempting to reserve for the city the right 
of control and regulation ; and 

3d. That of building them by the city and of having 
them operated by the city in the interests of all the 
people. 

The Traction interests and the Rapid Transit Commis- 
sion are about the only elements favoring the adoption of 



THE RAPID TRANSIT COMMISSION. 115 

the first method. The other two methods of control and 
regulation and municipal operation will be discussed 
later. 

The Belmont monopoly, by the grace of the Rapid 
Transit Commission, is grasping New York City in its 
toils, and unless the people take decisive action at once, 
the city will be completely at its mercy. Mr. Ray Stan- 
nard Baker's summary contains a warning against, as 
well as a description of, the growing Belmont power : 

"The people do not realize what this Belmont monop- 
oly has already come to be. It is not only the greatest 
combination of street car interests New York ever had, 
but it promises to be the most piratical The aims of 
Belmont, and the European Rothschilds behind him, is 
complete monopoly. Already he controls the subway 
and all the elevated railroads in Manhattan, he owns the 
surface-car lines in Long Island City, and he has just ac- 
quired the old perpetual franchise of the Steinway Tunnel 
Company, which enables him to build another tunnel to 
Brooklyn ; and he is on the way to obtain other impor- 
tant rights. Through his associates, also, he is interested 
in the new Hudson River Tunnel, which recently obtain- 
ed a franchise up Sixth Avenue, thereby giving him a 
grasp of the passenger traffic of Jersey City. And now 
he is trying to get hold of the financially dishonest Metro- 
politan Railway Company, which controls the surface 
lines of Manhattan. When he gets that he can rest with 
smiling content, having captured the city." 

That Mr. Belmont is well satisfied with the existing 
situation we know, for he has told us. He has even gone 
so far as to congratulate the public upon the contract 
which it made with him for the building and operation of 



Il6 THE RAPID TRANSIT COMMISSION. 

the subway and to warn us of the dangers of municipal 
ownership. 

Listen to what Mr. Belmont says : 

"That the enterprise in its results has been completely 
successful should be the subject of cordial congratulation 
by all citizens. * * * At a time when there are so 
many ill-digested and ill-considered plans under discus- 
sion, having for their object not only municipal owner- 
ship, but municipal operation - of transportation lines, 
the State of New York has reached the true solution of 
this problem — that municipal participation is justified to 
the extent of furnishing credit for the construction of 
such a work, but should stop short of the operation of the 
property when constructed. To private interests should be 
committed the risks and the burden as well as the profit of 
constructing, equipping and operating the road, the latter 
not being within the governmental functions or other 
legitimate province of a municipality." 



BRIDGES. 117 

CHAPTER V. 

Bridges. 

The observations of the Committee on City Plan of the 
Municipal Art Society, discussing the use and control 
which the city should exercise over its bridges, are 
worthy of consideration. In their report on Rapid Tran- 
sit in New York City in November, 1904, the Committee 
said. 

"Of these, the four great East River bridges (Brook- 
lyn, Manhattan, Williamsburgh and Blackwell's Island), 
together with the East and North River tunnels, should 
be considered essential parts, of which the city should 
never surrender its exclusive control. To all intents and 
purposes and as a consequence of the new bridges and 
tunnels, New York will ultimately become a square or 
round city like Chicago or Paris, with the added advant- 
age of cheap independent water transportation for com- 
modities. These bridges and terminals are consequently 
the keys to the successful development of passenger 
transportation in the interest of the passengers. 

"Control over these will, therefore, be eagerly sought 
by existing transportation companies, whose lines now 
constitute separate links of a temporary system ; which, 
for economy and convenience, must soon be welded to- 
gether. The bridges and river terminals in New York 
hold a position analagous to that of the present subway in 
the congested district of Boston, the control of which by 
that city enables it to regulate the entire elevated and sur- 
face systems which must use the subways." 

The Legislature at the request of the Rapid Transit 
Commission extended the powers of the Commission so 



Il8 BRIDGES. 

as to give them control over transit on the bridges. 
Bridge Terminals. 

Bridges should be regarded as streets and by means of 
subway or surface roads should be so extended that there 
should be no distinctively "bridge terminals." 

This view has received the consideration of the Com- 
mittee on City Plan of the Municipal Art Society. 

The discussion of this subject by this committee, of 
which Mr. Calvin Tompkins is chairman, is so valuable 
and instructive that I shall quote extensively from it. 
The following quotation is from that report: 

"Between Manhattan and The Bronx there is a bridge 
at which focuses the east side rapid transit traffic of both 
boroughs. We never hear of fighting crowds at either 
end; we have never been bothered about the connec- 
nections which the traffic over it makes with the routes 
to the north and south. 

"Between Manhattan and Brooklyn we have one bridge 
long in use, another ready, and another building. In the 
case of the first the crush at its Manhattan terminal is a 
danger and a scandal, and its relation to Manhattan traffic 
a problem even more acute. Similar conditions are assum- 
ed as probable at the Manhattan ends of the "Williams- 
burg" and "Manhattan" bridges, unless we meanwhile 
find a way out — in each case the only serious trouble 
being at the western end. 

"It is true that, within a thousand feet of the Park Row 
end of the present Brooklyn Bridge is located the daily 
work of so many who arrive by it that a station there 
might always be a fairly busy one. But the great mass 
of those who arrive in Manhattan by the Brooklyn 



BRIDGES. 119 

Bridge are dumped out at Park Row, far from their des- 
tination or from any connection by which they can get 
to it. 

"What, then, is it that turns into pandemonium at City 
Hall Park conditions everywhere else too well handled to 
be other than commonplace? It is this, and this only : 
In the sense that it is so adjusted as to create congestion 
the Park Row bridge station (one end of a single bridge) 
is our only bridge "terminal" ; and, at that, it is one too 
many. As a factor of a transport system a bridge should 
have no "terminals" but should be simply the section of 
a continuous route that happens to be carried over water. 
There is no more excuse for dumping all passengers at 
Park Row than there would be for putting them all out 
at any single point in Brooklyn, to dodge about on foot in 
the weather. There is no reason why all Bridge cars 
should not go west to the North river, as well as east to 
Long Island destinations ; no reason why a Manhattan 
passenger should not be able to transfer to or from a 
Bridge car at Broadway, West Broadway and West street 
as well as Park Row, and thus connect with every north 
and south line in Manhattan and with Jersey City ferries 
and tunnels as well. 

"If bridge traffic needs loop facilities, congestion might 
be avoided and public interest better accommodated by 
sending west bound cars to West street by some cross 
street a few blocks north of the Bridge, then southward 
along West street and back eastward a few blocks south 
of the bridge (the direct westerly approach to the bridge 
underground through City Hall Park being temporarily 
sealed by the line of the first subway). 

"Why has such a plan not been followed here? It has 



120 BRIDGES. 

repeatedly been followed, but only in cases where the one 
who arranged matters was so inspired by private interest 
that he could see beyond the end of the Bridge. When 
the Brooklyn Bridge was first opened, our city officials 
standing upon it saw beyond neither end of it, and we had 
Bridge cars — without connections at either end. Later 
"Brooklyn Rapid Transit" has been given possession, 
and since then the B. R. T. depends on Brooklyn connec- 
tions, the Bridge has them. The B. R. T. does not con- 
trol Manhattan connections, so the Bridge dumps its pas- 
sengers at Park Row. The "Metropolitan" aggregation 
of Manhattan swallowed the Bronx system. That in- 
sured that its passengers should not be discharged with 
an "All out" at either end of its Harlem Bridge. 



"Current 'plans' involve either a subway or an elevated 
structure connecting the Manhattan ends of the two 
bridges ("Brooklyn" and "Williamsburg"). What for? 
What reason is there to think that more people want 
to go from one bridge to the other than wish to travel 
between City Hall Park and any other place as far out of 
the way as the junction of Suffolk and Delancey streets? 
Why not continue the trains from each bridge to where 
passengers do want to go? Or to connections that will 
most promptly land them there? The answer is one that 
he who runs may read. It is assumed that the Metropoli- 
tan system will fight any continuation of Brooklyn lines 
into Manhattan; that the B. R. T. would collapse if it 
were turned off the Bridge and the Metropolitan allowed 
to establish rapid transit facilities from all Manhattan to 
our eastern suburbs ; that the Belmont interest insist that 



BRIDGES. 121 

each new factor be made such a mere extension of its 
route so that no other contractor can bid; and, finally, 
that the City has no rights — though it owns the bridges 
and the streets, and must pay for building the lines, and 
its citizens are to use them. 

"The situation is an embarrassing one — if all that the 
City has to do is to apportion its rights between private 
undertakers. But it is a clear one — so clear that if longer 
muddled by failure to vindicate the City's interests it will 
neither be forgotten nor pardoned by our people. 

"What should be done? Just what, if the "Metropoli- 
tan" or the B. R. T. or the Belmont interest had owned 
what the City now owns, either would long since have 
done. A comprehensive plan should be devised for rapid 
transit throughout the city; not for complete realization 
at once, but that each step may be taken with intelligent 
reference to the end in view. Any contractor, corporate 
or individual, could then bid for any portion with regard 
to its relation to the whole — already fixed in the public 
interest. But until such plan exists, the adoption of any 
proposition — however well intended or well worked out 
by itself — must almost necessarily embarrass future de- 
velopment. 

"Such a plan should be devised with little or no regard 
to operation by present franchise corporations. So far as 
concerns their systems, these are so obsolete and inade- 
quate, and would be so dependent for profitable operation 
on transfer and other connections with the new lines, that 
for the City to wait for them or yield to their defiance 
would be to lose dollars to save cents, and be mulcted for 
generations to gain a few months now. Within twenty 
years — largely within ten — there will be left worth con- 



122 BRIDGES. 

sideration (except as incidentals) but little of our present 
surface and elevated systems. The idea of our present 
franchise corporations venturing a real struggle with the 
one power that can parallel at cost — without watering 
stock — every facility they can offer, is preposterous. On 
the contrary, if the City insists, they will be glad to serve 
it on its own terms ; and when these are settled, they may 
well prove our very best agents to operate a large part of 
our developing system/' 

From these considerations this report presents the fol- 
lowing conclusions : 

"(i) Whatever one or another of our franchise corpo- 
rations may want, the City has no special need for either 
elevated or subway connection between its bridge ter- 
minals in Manhattan; and the way to treat the present 
problem of danger and riot is radically to better present 
conditions in the way best calculated to serve our people, 
leaving each and every franchise corporation to make the 
best of that result ; and 

"(2) A bridge should not be considered as an isolated 
structure, but simply as a 'trunk' section of continuous 
streets reaching every locality of the city; hence, for 
transit purposes, involving no special scheme of 'termin- 
als' whatever." 

The Brooklyn Bridge. 

In 1867 the New York Bridge Company was incor- 
porated by Act of the Legislature and under this act 
the cities of New York and Brooklyn were authorized 
to subscribe to its capital stock by vote of two-thirds 
of the council in each city, and to issue bonds in pay- 



BRIDGES. 123 

ment. Under this act these cities or either of them were 
authorized to purchase the bridge at any time upon pay- 
ment of the cost and one-third additional. In 1869 both 
cities subscribed to the stock and the Mayor, Comp- 
troller and President of the Board of Aldermen in New 
York and the Commissioners of the Sinking Fund in 
Brooklyn were made directors of the Company. In 1874 
the two cities were authorized to buy out the private 
stockholders and the bridge became a public work. The 
expense of construction amounted to $15,000,000, of 
which Brooklyn paid two-thirds and New York one- 
third. From this time until the consolidation and the 
establishment of Greater New York, the bridge was 
managed by a board of eight trustees. The Board of 
Trustees was empowered to operate a railway over the 
bridge or lease the right to operate to others. It estab- 
lished public operation and for many years the railway 
over the bridge was the only publicly-owned and oper- 
ated railway in the United States. In 1897 the Board 
of Trustees ceased to exist and the bridge came under 
the control of the Commissioner of Bridges of the City 
of New York. 

In order to get rid of the only municipally-owned 
street railway in New York City, the railroad companies 
agreed, if permitted to run their cars over the bridge, to 
carry passengers without any additional charge. This 
offer was accepted and the Brooklyn Rapid Transit 
Company was permitted to run its cars over the bridge 
in consideration of paying the city I2j^ cents for each 
elevated railway car and 5 cents for each surface car. 
In speaking of these terms, Dr. West says it was "a need- 
lessly great sacrifice of revenue, it would seem, however 



124 BRIDGES. 

desirable the innovation." This criticism is undoubtly 
just, although it must also be considered that in thereby 
dispensing with the Brooklyn terminal the public con- 
venience was very greatly promoted. It is also worthy 
of note in this connection that no long-term lease was 
given to the railroad company and the city's right of 
control was in no way surrendered. The company was 
permitted to operate its cars over the bridge under a 
mere license revokable on three months' notice by either 
party to it. 

Inasmuch as the public railway over the bridge was the 
only municipally owned and operated railway in the 
United States, the results of this operation should be 
carefully considered. The public operation of this rail- 
way was from the standpoint of the city a very great 
success. In writing of it Dr. West says : 

"The management of the bridge and the bridge rail- 
way, as compared with that of the elevated and surface 
roads in the two cities, has been, on the whole, remark- 
ably good." 

Prof. Bemis, in discussing "Street Railways" in "Mu- 
nicipal Monopolies," presents a detailed study of its oper- 
ation which is reproduced below. He says : 

"The Brooklyn Bridge Railway has been famous since 
1883 for its enormous traffic, efficient service, remark- 
able freedom from accident and its admirable treatment 
of its employees. It has hauled over 500,000,000 pas- 
sengers with only two fatal injuries, one to a passenger 
and one to a trainman, and one other serious injury to a 
passenger. The total amount of time lost on the railway 
by delays from all causes in 1896 was only 4 hours, 48 
minutes, an average of 40 seconds per day, and of one 



BRIDGES. 125 

minute for each 152,765 passengers carried. The writer 
made a personal investigation of the treatment of em- 
ployees in 1897, and found that the engineers received 
50 cents per hour for 8 hours, or $4 a day, and the fire- 
men 29^ cents an hour, or $2.37 a day ; while the en- 
gineers on the privately owned elevated roads in New 
York and Brooklyn received $3 a day the first year and 
$3.50 afterwards per day of 10 hours, and the firemen, 
for a similar 10 hour day, received $2 in New York and 
$1.75 in Brooklyn. The ordinary train hands on the 
Bridge Railway received $2.86 for an 8 hour day, as con- 
trasted with $1.50 to $2.30 for a 10 hour day on the ele- 
vated roads. The Bridge Railway employees also re- 
ceived free medical attendance in case of injury and usu- 
ally half their regular wages as long as needed, a two 
weeks' vacation on full pay, rubber coats and gloves, 
and two suits of uniforms a year. The employees of the 
private owned roads said they had none of these ad- 
vantages, but had to pay $9.80 for their summer suit 
and $12.60 for their winter suit. The road has charged 
3 cents for a single fare or 2 tickets for 5 cents, and has 
received an average fare of .273. In 1897, the last year 
for which an official report is at hand, the total cost of 
transportation for the nearly 46,000,000 passengers in 
that year was apparently about $200,000 less than the re- 
ceipts, if the expenses for interest and extensions, police- 
men, and some other charges connected with other parts of 
the bridge, be excluded. In fact, if a full separation could 
be made of the railway expenses from the other expenses 
of the bridge, it is quite likely that more than $200,000 
of excess of receipts would be brought to light ; but even 
the latter amount to be credited to depreciation and 



126 • BRIDGES. 

profit is 13 1-3 per cent, on the $1,500,000 which the 
Chief Engineer and Superintendent of the road, Mr. 
Charles C. Martin, declares was the cost of the road it- 
self, although the road and bridge together are said to 
have cost $15,000,000/' 

Williamsburg Bridge. 

The manner in which private corporations desire to se- 
cure control of the bridges which are highways of the 
greatest importance is revealed in the contract made by 
Commissioner Best with the Brooklyn Rapid Transit in- 
terests. The Commissioner of Bridges, in August, 1904, 
made a contract by which these companies are permitted 
to operate a railroad on the bridge for a term of ten years. 
The Bridge Operating Company was formed, with a 
capital of $1,000,000, for the purpose. Thus during this 
period the lessees can prevent the development of all 
transit plans which involve the use of the Bridge and the 
city's right of effective control is surrendered. 

The Committee of the Municipal Art Society protested 
to the Mayor against this contract, saying : 

"In the opinion of this society, the four East River 
bridges, which, when completed, will have cost the city 
upwards of seventy millions of dollars, constitute the 
great highways of Long Island leading to Manhattan, 
and their full use for all purposes of municipal travel 
should be maintained to the utmost practical extent.. It 
does not seem to us desirable or right that the tracks upon 
them should be turned over exclusively for so long a 
period as ten years, as has been done in the case of the 
Williamsburg Bridge. " 



BRIDGES. 127 

It is certainly true that an official appointed by the 
Mayor should not be permitted to make a contract limit- 
ing the city's control over one of its most important 
bridges for a long term of years. 

That the Bridge Commissioner is likely to make other 
contracts of like character is apparent from the letter of 
Commissioner Best to Calvin Tompkins, Esq., as chair- 
man of the City Plan Committee of the Municipal Art 
Society, on June 23d, 1904, in which the Commissioner 
not only reasserts his belief in ten-year contracts, but 
assigns a most ridiculous reason for holding this view. 
In his letter he says : 

"In my judgment, ten years is the proper term of an 
agreement such as we are now making on the Williams- 
burg Bridge. It will take half this time to determine 
whether the thing will work satisfactorily or not, and the 
other half will be necessary to enable the city officers to 
determine what different thing they care to do at the 
expiration of the lease/' 

It would seem that the success of the contract might 
be determined in less than five years, and that competent 
city officials ought to be able to determine "what different 
thing they care to do at the expiration of the lease" in 
less than five years. 



128 FUNCTIONS OF GOVERNMENT. 

CHAPTER VI. 

Functions of Government. 

It is the function of government to secure equal rights 
to all. When men have equal opportunities and engage 
freely in competition no injustice results to those so en- 
gaged or to society. When government grants to some 
a special privilege without requiring a return equal to 
the value of that privilege an injustice is done to all. No 
person or corporation without the consent of the govern- 
ment has the right to lay pipes or wires or tracks in the 
streets of a city or to exert the right of eminent domain 
or to collect tolls unless he or it is first authorized to do 
these things by government. The grant of the right to do 
any of these things is a special right, or privilege, which 
is contrary to common right or the privileges enjoyed by 
others. When by virtue of such special privilege or fran- 
chise, corporations are permitted to use the streets for the 
purpose of transporting gas, electric current or passen- 
gers, they enjoy a permission to make use of the streets 
which is denied to others. As the services rendered by 
these corporations are rendered to the public, who are 
prevented from rendering such services for themselves, 
the public become absolutely dependent upon their proper 
performance. 

The idea that corporations owning public franchises 
serve the public best as a result of competition is no 
longer generally accepted. Business men have long since 
recognized as true George Stephenson's statement that 
"When combination is possible, competition is impossi- 
ble," and that combination is not only possible, but in- 



FUNCTIONS OF GOVERNMENT. I29 

evitable in great public service functions, such as ferries, 
street railways, gas and electric lighting. Such public 
services can not only be best rendered by those possess- 
ing a monopoly, but ultimately must become monopolies 
and be administered as such. These public services are 
now very generally recognized as natural monopolies, 
and the fact that the public are interested in their proper 
administration is appreciated by everybody but the cor- 
porations charged with the duty of performing them. 
Many of them, unfortunately, still adhere to the elegant 
and often-quoted aphorism of the late Commodore Van- 
derbilt, "The public be damned." 

Those engaged in performing such public functions 
are no longer regarded as operating merely their private 
business affairs. The performance of these public serv- 
ices is public, not private, business. The proper operation 
and administration of these natural monopolies is essen- 
tial to the well-being and the comfortable existence of 
modern city life. Since the performance of these public 
services is a public necessity, the public should not be de- 
pendent upon private corporations for their proper opera- 
tion. Because they are natural monopolies and public 
necessities they are proper functions of government. 
With the development and complexity of modern city 
life has come a need for the expansion of the functions of 
government. In the first stages of a farming community 
the simple needs of each inhabitant are within the power 
of each to statisfy. When the farming district develops 
into a village, or town, a few inhabitants make their living 
by serving others ; by acting, for instance, as common 
carriers of their persons and goods. When the village 
becomes a great city, ministering to the wants and neces- 



I30 FUNCTIONS OF GOVERNMENT. 

sities of millions of people living over miles of space and 
in close intercourse with one another, the inhabitants be- 
come absolutely dependent upon those who have these 
public functions to perform. If those enjoying these 
public functions, realizing their power, increase their 
profits and neglect the geneial welfare and trample upon 
individual rights, the only way open to the individual to 
protect himself in his rights, is to have the government, 
which is his representative, administer these functions for 
the benefit of the whole community with due regard to 
the protection of the individual rights of each citizen. 
Nor will the public be deterred from thus protecting their 
individual rights by the cry of Socialism. Municipal 
operation is not Socialism in the sense in which that term 
is generally used. Municipal operation is the only means 
left to the community of preserving and protecting the 
individual rights of each citizen against the complete 
monopoly which is enjoyed by private corporations in 
rendering these public services. Consolidation we must 
have in these natural monopolies ; it is cheaper and better ; 
it is the irresistible tendency of the time, and will be of 
the future. Let us, therefore, have consolidation in the 
interests of the public. Since the operation of public 
franchises naturally results in monopoly, this monopoly 
should be placed not in private hands to be operated for 
private gain, but in the hands of the public to be operated 
for the public good. Since the government exists to 
secure the equal rights of all, every monopoly is within 
the sphere of governmental regulation and if the mo- 
nopoly is complete and competition cannot be restored 
by withdrawing the special privilege upon which it rests, 
its operation becomes properly a function of the govern- 



FUNCTIONS OF GOVERNMENT. I3I 

ment. The operation of railroads, the supply of gas and 
electric current for light, heat and power, are natural mo- 
nopolies in our modern cities and should, therefore, be 
treated as functions of the city government. 



132 REGULATION AND CONTROL AS A REMEDY. 

CHAPTER VII. 

Regulation and Control as a Remedy. 

It is frequently urged by those who appreciate that 
such public services as are furnished by gas and electric 
light plants and street railways are natural monopolies, 
but who fear to have them operated by the city govern- 
ment, that they should be placed in private hands and 
subjected to municipal control and regulation. There 
are, however, very good reasons why this policy should 
neither be adopted nor encouraged. Such a policy is 
unjust in that it grants to some a special privilege or 
exclusive opportunity for making a profit which it denies 
to others, and such attempted control and regulation is 
ineffective and fails to protect either the taxpayer or the 
user or consumer of the public service. Control and 
regulation recognize private monopoly and attempt to 
modify or restrain its actions while admitting its prop- 
erty rights from which naturally flow a right to exercise 
control. As Prof. Parsons has said: 

"It lets one set of men do the work and employs an- 
other set to determine how it shall be done, and a third 
set to watch the first, and see that the regulations pro- 
vided by the second set are properly obeyed." (City for 
the People," p. 106.) 

The attempt to regulate and control private monopoly 
does not do away with the antagonism which inevitably 
exists between public and private interests. Many of 
the laws advocated by those who favor regulation and 
control, but oppose public operation, are good in them- 
selves under present conditions and as temporary meas- 



REGULATION AND CONTROL AS A REMEDY. 1 33 

ures could not be other than useful and beneficial to the 
community. Thus, those requirements which compel 
public service corporations to keep proper books of ac- 
count pursuant to some uniform method of bookkeep- 
ing, and which require publicity and seek to make over- 
capitalization impossible, are beneficial as far as they go. 
In the main, however, they will doubtless in the future 
prove to be almost as impossible of enforcement as they 
have been in the past. Until the people are ready to have 
the government assume its proper functions, and operate 
these natural monopolies, these measures are valuable 
only as preliminary steps toward the attainment of that 
end. The slight information that may be obtained by 
these means may also prove of value to the public when 
the public shall assume their actual operation. Except 
for incidental benefits the efforts at public control and 
regulation of private monopolies will prove worthless. 
Actual experience shows us that this is true. Such meas- 
ures have in a greater or less degree been generally 
adopted and whenever adopted have proved a source of 
disappointment to those interested in them. The require- 
ment that public service corporations shall make sworn 
returns has encouraged perjury among corporate officials 
(who needed rib such encouragement) but has accom- 
plished no* other purpose. The methods of corporate 
managers in organizing, disposing of their stock, dis- 
solving, fe-organizing and consolidating; together with 
the transferring of their stocks, leasing and sub-leasing 
to themselves and to one another, and the inter-contract 
system which exists between them, makes it utterly im- 
possible to ascertain either their present status or to 
compel their obedience to the details of State or muni- 



134 REGULATION AND CONTROL AS A REMEDY. 

cipal regulations. The complicated legal system which 
exists enables them always to take refuge behind some 
law, that was perhaps designed for an entirely different 
purpose. A despotic government bound by no law and 
not under the necessity of proceeding against them 
strictly according to law, might regulate or control them. 
But under a popular government where every step must 
strictly conform to statutory and constitutional limita- 
tions, there is little likelihood of their being effectually 
regulated or controlled. Henry George has well said : 

"As for any satisfactory State regulation of railroads, 
the experience of our States showed it to be impossible. 
A strong-willed despot, clothed with arbitrary power, 
might curb such leviathans, but popular governments can- 
not. The power of the whole people is, of course, greater 
than the power of the railroads, but it cannot be executed 
steadily and in details. Even a small special interest is, 
by reason of its intelligence, compactness arid flexibility, 
more than a match for large and vague general interests ; 
it has the advantage which belongs to a well-armed and 
disciplined force in dealing with a mob." ("Social Prob- 
lems, " p. 181.) 

Corporations inform themselves fully of the law before 
they act, and, guided by the most skillful legal talent, they 
find little difficulty or risk in violating it or in placing 
themselves in such a position as to be free from control 
or regulation under existing laws. When the legislature 
or municipality have introduced new laws to meet their 
case and to subject them to control or regulation, they 
have experienced little difficulty in altering their legal 
position either by becoming a voluntary association or 
by assigning their rights or placing their stocks with for- 



REGULATION AND CONTROL AS A REMEDY. I35 

eign corporations, so that by the time the new law has 
been placed upon the statue book and the officials are 
ready to enforce it, it has very little application to the 
corporations sought to be controlled, in their now chang- 
ed condition. If corporations operating such natural 
monopolies could be compelled through regulation and 
control to make adequate compensation to the public 
for the public franchises they now enjoy and could be 
prevented from practicing extortion through high 
prices and high rates or fare, the community might con- 
sent to have these monopolies remain in private hands. 
But already a sufficient number of bona fide attempt? 
have been made to permit of a fair estimate of the re- 
sults of such regulation and control. Every such at- 
tempt has resulted in failure. Failure has resulted either 
because it was in its very nature unavoidable or because 
of the fraud of the monoply and in many cases both 
causes have contributed to the failure. Massachusetts has 
tried public control. Regarding this experience, Mr. 
Ernest Howard, writing in Municipal Affairs, says: 

"And present disclosures in the gas business of certain 
Massachusetts cities go to emphasize the above views, for 
they record the practical failure of the plan of public 
regulation and restriction of the operation and profits of 
these monopolies. Under a commission especially charged 
with the oversight of the companies, it has appeared that 
the companies have done about as they pleased and paid 
what rates of profit they pleased, and now they are en- 
gaged in beating the law which confines capitalization to 
money actually paid in by the stockholders, organizing 
securities companies which take over the gas companies 
stock and issue these at a new and greatly inflated capitals 



I36 REGULATION AND CONTROL AS A REMEDY. 

zation, which is used to spread exorbitant charges over a 
wider surface in a lower and less conspicuous rate of 
dividend. The case affords the most striking illustration 
at hand of tli€ essential weakness and viciousness of the 
principle of private monopoly ownership." (Dec, 1899, 

P. 749-) 

Professor John H. Gray, of the Northwestern Univer- 
sity, has made a thorough study of the gas question and 
admits the difficulties in the way of public control or 
regulation. His account of the attempt of the Massachu- 
setts Gas Commission to regulate and control the Boston 
gas companies shows that their efforts have resulted in 
complete and absolute failure. The conditions in Massa- 
chusetts were certainly as favorable to the successful 
exercise of public control as will probably be found in 
any other State in the Union. The Massachusetts Gas 
Commission has unlimited inquisitorial powers ; it pos- 
sesses complete power over the capitalization of - com- 
panies, with power to admit or exclude competing com- 
panies and with authority from the State to fix the price 
of gas. The policy of permitting a monopoly to exist 
under State regulation and control, and protecting it from 
other competitors has become established in Massachu- 
setts. The result has been that the corporation enjoyed 
the monopoly in which it was secured, but it did not sub- 
mit to regulation and control and the attempts of the Com- 
mission to regulate and control it proved futile. With 
all the power delegated by the State to the Commission 
they are unable to ascertain the true facts as to the cost 
of manufacturing gas which would enable them to fix a 
reasonable price and they have been unable to prevent 
over-capitalization and its consequent evils. After re- 



REGULATION AND CONTROL AS A REMEDY. 1 37 

viewing the attempts to control the gas companies sup- 
plying Boston; Professor Gray says : 

"But if it (Gas Commissioner) had perfect access to all 
the books and records of all the companies, so long as the 
inter-company contracts exist and are entered into and 
changed at will by men who in each case are making con- 
tracts with' themselves, we cannot presume that the Com- 
mission will ever get permission to make expenditures 
enough to enable it to keep up with the hide-and-seek 
game played by those in control of the industry, or to 
audit the accounts of the different corporations all kept 
by the same men, often enough, or with sufficient care to 
have any confidence in a judgment based on them or to 
presume to justify that judgment to the public. It is 
utterly impossible for any public authority in Massachu- 
setts to say what a fair price for gas in Boston is." 
("The Difficulties of Control as Illustrated in the History 
of Gas Companies." Address at the fourth annual meet- 
ing of the American Academy of Political and Social 
Science.) 

Prof. Gray, while admitting the uselessness or inef- 
fectiveness of control and regulation, is not willing to 
accept the alternative of public operation and he almost 
despairingly announces "that the hope of the future lies in 
patiently improving and perfecting the educational work 
of administrative control, with its uniform bookkeeping, 
accounting and public inspection." 

In this proposed remedy which he suggests, the Pro- 
fessor evidently has not very much confidence, for he 
pathetically adds : 

"If this fail ultimately, we shall of course try some- 
thing else ; but I for one shall come to believe with Cyrano 



I38 REGULATION AND CONTROL AS A REMEDY. 

de Bergerac that 'one does not fight because there is hope 
of winning' and that 'it is much finer to fight when it is 
no use/ " 

Attempted control and regulation have failed whenever 
resorted to in the past, and will fail in the future. As a 
proposed remedy it is utterly inadequate. The majority 
of our citizens, realizing that their attempts at regulation 
and control have been defied and that they are subjected 
to inconvenience and extortion from these public service 
corporations, will not hesitate to adopt the obvious alterna- 
tive of public ownership and operation. 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I39 



CHAPTER VIII. 

Arguments in Favor of Public Ownership and 
Operation. 

In the discussion of the Gas and Electric Lighting Com- 
panies and the Street Railways of New York City, the 
evils of private monopoly have been sufficiently manifest. 

Excessive Charges — Power to Tax. 

Private monoply always results in excessive charges. 
It is because the monopoly secures the excessive profit 
that men try to get it so that they will not be forced to 
accept the rate fixed by competition. Every excessive 
charge which a public service corporation collects from 
the consumer is a tax levied upon him for private pur- 
poses. These public service corporations, in being able 
to charge excessive rates for the necessities of life possess 
and exercise the power of taxation. It is taxation with- 
out representation and taxation levied solely for purposes 
of private gain. The power to tax is a function of gov- 
ernment and ought to reside only in public hands and 
should only be used for public purposes. 

Prof. Bemis, the gas expert, says truly that "Gas is a 
monopoly and the individual consumer has no protection 
from extortion unless it is given by the city and the State." 
("Municipal Monopolies," p. 588.) 

The same eminent authority has pointed out that in 
Great Britain, where the companies fear the adoption of 



140 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

public operation, the average price of gas is only 75 cents, 
or about half the American price, and at the same time he 
assures us that there is no reason why the cost of gas 
should be greater here than in England. 

Professor John R. Commons has made a comparison; of 
charges for commercial lights under public and private 
operation and he assures us that "a comparison of these 
rates shows that private companies charge for commercial 
lighting 50 to 100 per cent, more than municipal plants." 
("Municipal Monopolies," p. 150.) 

The tax which private corporations collect from the peo- 
ple in excessive charges is enormous. 

In Boston, an investigation taking place several years 
ago, showed that the electric lighting, companies alone 
collected a monopoly tax exceeding $800,000 a year. In 
New .York City the tax collected by the electric lighting 
companies by excessive charges is much larger than this 
sum. Exorbitant taxes are levied upon the people by the 
street railways. It is estimated that the cost of operating 
an electric road in New York City, allowing for taxes, 
depreciation and including interest on an inflated debt and 
dividends on watered stock, amounts to about 14 to 16 
cents per car mile. A uniform three cent fare, Prof . Par- 
sons estimates, would yield from 15 to 36 cents per car 
while on the roads. In New York City the uniform five- 
cent fare, regardless of the distance, is . exorbitant and 
greatly in excess of that charged by other cities. This 
is made clear from the following table taken from Mr. 
Parsons' "City for the. People." 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I4I 

STREET RAILWAY FARES IN CENTS. 



City. 


Population. 


General 
Working- Chil- Rate 
men 's dren 's for Short 
Rate. Rate. Distance. 


Average 

Fare 
on Whole 
Traffic. 


Milan . . . 


. 440,000 


I. 


2 


1.8 


Vienna . . 


. 1,560,000 


1.6 


2 


2-7 


Berlin ... 


.1,800,000 


.... 


... 2/ 


3 


Budapest 


. 500,000 


.... 


2 


2.7 


London . 


. 4,000,000 




1 


2-5 


Belfast .. 


. 256,000 




2 


2.2 


Glasgow . 


. 840,000 


I 


1 


I.78 


Toronto . 


. 176,000 


3 


2/2 4 


4.2 


Detroit . 


. 280,000 




3 


3-3 


Buffalo . 


. 360,000 


.... 


3 5 


3-6 



Under public operation fares are less than under private 
operation. Thus, in Glasgow, the street railways were 
acquired in 1894. Under private ownership the average 
fare was 3.84 cents per passenger, while in 1898, under 
public ownership, the average fare was 1.84 cents per 
passenger. 

In Toronto school schildren ride for 2^ cents, and in 
Buffalo for 3 cents. In New York City the private trac- 
tion companies make no reduction for children. 

Over-Capitalization. 

By resorting to over-capitalization the public service 
corporations disguise the enormous dividends which they 
actually collect. By capitalizing their plant at an amount 
greatly in excess of its true value and paying dividends 



142 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

upon it, the corporations plead poverty when expected to 
pay taxes or give better service to the community. ' 

In the street railway companies the actual value of the 
plant seldom exceeds the amount of the bonds and the 
whole issue of stock usually represents "water." Mr. 
Edward B. Whitney, writing in the Yale Review, de- 
scribes the method to which the public service corpora- 
tions resort. He says: 

"As fast as the street railroad company's or the gas 
company's or the electrical company's earnings thus in- 
crease, its old stock is converted into bonds and new stock 
issued to represent that increment. The new stock is sold 
to the public with fabulous profits for the syndicate mana- 
gers. Legislative regulation of rates is then resisted on 
the ground that unfortunate stockholders would lose their 
dividends. The State is put into a dilemma in which it 
ought not to be — a dilemma between doing justice to the 
public, who have made the increment, and doing mercy to 
the ignorant stockholders who have invested their sav- 
ings in the new stock." 

Over-capitalization or stock-watering is a method of 
swindling which is universal among all public service 
corporations. When the Manhattan Elevated Railroad 
took over the franchise of the New York Elevated and 
Metropolitan Elevated upon 999 years' lease it grossly 
over-capitalized the new company. In taking over the 
stock of the old companies, which were largely water, it 
issued $13,000,000 more watered stock upon this basis. 
The report of the Railway Commission (1883) declared 
that this issue of stock was "only a pyramid of water 
upon a pedestal of transparent fraud." 



arguments in favor of public ownership. i43 

Poor Service. 

Private ownership means not only excessive charges, 
exorbitant profits and gross over-capitalization, but it 
means poor service to the public. It is cheaper to carry 
passengers "on a strap" than to furnish a seat, and it is 
cheaper to carry them in cars that are not heated than to 
pay for proper appliances to heat the cars. All the com- 
panies operating in New York City encourage "strap 
passengers" and the Brooklyn Rapid Transit Company, 
in addition to this, makes a specialty of not heating their 
cars during the winter months. Many citizens have lost 
their lives from the exposure to which they have thus 
been subjected. Modern improvements are not adopted 
with proper promptness and favoritism is used in the 
selection of proper safety appliances. Discrimination or 
secret rebates cannot be prevented while private monopoly 
in these utilities exist. Public safety, health and conven- 
ience are all sacrificed to the supreme consideration of 
private ownership, viz. : Making private profits. When 
a public-spirited citizen of Brooklyn pointed out to a high 
official of the Brooklyn Rapid Transit Company that im- 
provements were necessary for the good of the public, the 
official told him that he was put in his present position to 
run the road for the good of the stockholders rather than 
the public. 

Fraud and Corruption. 

The franchises under which public service corpora- 
tions operate were conceived in bribery, fraud and poli- 
tical corruption and their owners have purchased ex- 
emption from proper regulation &nd control by a re- 



144 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

sort to like mefhods. They maintain lobbyists at 
all of the State capitals to protect their interests and to 
find and avail themselves of every opportunity for mak- 
ing a raid upon the people's rights. They ally them- 
selves with bosses and political rings and exert a power- 
ful political influence, which is always directed to promot- 
ing their own interests and against the public welfare. 
They are active political agencies. In* return for favors 
received from politicians, they allow the politicians to 
designate certain of their employees. The establishment 
and improvement of the civil service law has greatly 
diminished the power of the politician or political machine, 
because it has to a large extent withdrawn from them the 
power to assign places to work or "jobs" in the public ser- 
vice. A New York alderman recognized this when he ad- 
mitted that his opposition to public ownership was that 
if it was adopted places on the street railways would 
be subject to civil service rules, and he truly said that the 
private corporations offered the principal opportunity 
which politicians had of securing places for their hench- 
men. Bribery in obtaining franchises and resort to the 
same methods to retain and extend them, over-capitali- 
zation, excessive charges for inferior service and per- 
jured statements to tax assessors, together with low 
wages to employees and longer hours required of them, 
are the usual incidents of private ownership of public 
utilities. 

Statutes prescribing the hours of labor upon street 
railways have been treated by the companies with about 
as much consideration as would have been given to them 
if they had never been enacted into law. Rather than 
pay a slight increase in wages or submit to a slight re- 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I45 

duction in hours, the street railway companies have fre- 
quently subjected the community to the annoyance and 
inconvenience of a strike. 

Antagonism Between Public and Private Interests 
Under Private Operation. 

Such are some of the fruits of private monopoly, and as 
long as private monopoly is indulged it will continue to 
produce fruits of a like nature. These evils result, not 
from the fact that a monopoly exists in the performance of 
these public services, but from placing these monopolies 
in private hands. In the performance of these services 
there can be no competition. Monopoly is cheaper, bet- 
ter, and inevitable. But the monopoly should be placed 
in public hands and administered by the government in 
the same manner as other governmental functions are 
administered. While the monopolies are in private 
hands there must always exist an antagonism between 
public and private interests and the private interests 
favor themselves. Public ownership destroys this an- 
tagonism and substitutes for greed and selfishness the 
desire to serve the public. 

Economy Under Public Operation. 

The corporations which have been engaged in the 
operation of these public utilities have demonstrated be- 
yond all question that monopoly minimizes waste. The 
private consolidations which have been effected, while 
an economy over the competitive system, have not been 
as economical as public operation would be. 

Private consolidation has only been effected in many 
instances by assuming the bonded debts and fixed 



I46 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

charges of constituent companies and in some cases by 
assuming also the stock of the old companies. Under 
public operation greater economy would be possible. 
The very large salaries of some of the high officials 
could be dispensed with and a great saving of legal ex- 
penses and attorneys' fees would result. Fair, even lib- 
eral, salaries and wages should be paid to those whom 
the public employ to render these services, but the purely 
"fancy" sums now paid to some of the officials of the 
private companies would certainly cease. Money paid to 
influence legislation and for corruption purposes would 
also be saved. 

Experience Shows the Benefits of Public 
Operation. 

In Glasgow, the second city of Great Britain, the pub- 
lic ownership and operation of public utilities has been 
thoroughly tried and the result has been in every way 
satisfactory to the people of that city. 

It is sometimes urged that Glasgow cannot be com- 
pared with American cities and that, therefore, no infer- 
ence favorable to public ownership and operation in 
America should be drawn from Glasgow's success. But 
results in Glasgow when these utilities were controlled 
by private corporations can be compared with results 
secured in the same place under public ownership and 
operation. The result of municipal ownership in Glas- 
gow of its tramways and gas and electric light plants 
have been lower rates and fares, better service and in- 
creased traffic and higher wages with shorter hours for 
employees. 

In New York City we have municipal ownership and 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I47 

operation of the water supply and it is a success. The 
New York City public water system in 1903 produced 
a revenue to the city of $2,500,000 over and above the 
expenses of administration, maintenance and operation 
plus interest charges. To show the net profit, however, 
there should also be deducted from this amount 1 per 
cent, of the total amount of outstanding water bonds 
and corporate stock ($77,000,000) as a provision for 
sinking fund, leaving as a net income to the city, for the 
year 1903, of $2,475,000. To this amount should fairly 
be added the free public water service. At current 
rates this service several years ago was estimated 
to be worth at least $600,000 a year. In 1903 it 
was much larger, but, accepting this estimate as 
correct, the total net profit to the city from the owner- 
ship and operation of its water supply in 1903 amounted 
to $3,075,000. 

In the Boroughs of Manhattan and The Bronx the 
public are supplied with water from the public plant. 
In the Borough of Brooklyn the major part of the supply 
comes from a public plant, but it is supplemented by 
services from private companies. In the Borough of 
Queens the public supply is supplemented by water fur- 
nished under contract with a private company. In the 
Borough of Richmond the greater portion of the water 
supply is derived from local private water companies. 
Commissioner Monroe in his report for 1903, speaking 
of the Borough of Richmond, says that "The water is 
for the most part of poor quality, the rates are high and 
the service inadequate for needs of the increasing popu- 
lation. " The city operates a small pumping station at 
Tottenville and mains have been laid from this station, 



I48 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

but it supplies only a small section of the Borough of 
Richmond. 

Thus in New York City a comparison is possible be- 
tween results under public and private operation of the 
water supply. 

If New York City can achieve such splendid results 
with its public water supply, why could it not be equally 
successful in the operation of gas or electric plants or 
its street railways? New York City has had municipal 
ownership of its water works since 1843. The tendency 
all over the country is toward the establishment of mu- 
nicipal ownership of water works. In 1800 there were 
one public plant and 15 private plants. In 1850 there 
were 33 public plants and 50 private plants. In 1880 
there were 293 public plants and 305 private plants. In 
1896 there were 1,690 public plants and 1,489 private 
plants. Or, to state the same proposition by percent- 
ages : In 1800 over 93 per cent, of the water works were 
privately owned. In 1850 over 60 per cent, were pri- 
vately owned. In 1880 over 51 per cent, were privately 
owned. In 1896 over 53 per cent, of the water works 
were publicly owned and operated. (Water Works, by 
M. M. Baker, Ph. B., "Municipal Monopolies/' p. 16.; 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I49 

The following table taken from Prof. Parsons' 
"City for the People/' gives the cost of Electric 
Light BEFORE and AFTER Public Ownership: 







&PS* « 

f+2 ffl ^rt- 



BEFORE AFTER 



AFTER 



Aurora, 111 $325 

Elgin, 111. . . . 228 

Fairfield, la 375 

Marshalltown, la 125 

Bay City, Mich 100 

Detroit, Mich 132 

Allegheny, Pa. 180 

Bangor, Me 150 

Lewiston, Me. 182 

Peabody, Mass. 185 



$72 


$61 


62 


56 


95 


80 


40 


30 


67 


58 


83 


68 


86 


75 


58 


48 


58 


52 


73 


62 



I50 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

The following contrast, showing the difference in rates 
charged under private and public ownership, is taken 
from "The City for the People." 



Water and Gas Under Private 


Under Public 


Charges. Ownership. 


Ownership. 


Ordinary family charge for 






water: 






Syracuse, N. Y., 


$10 


$ 5 


Auburn, N. Y., 


8 


6 


Randolph, N. Y., 


10 


4 


Average in Indiana, 


9 3-4 


4 2-3 


Average in Illinois, 


8 


51-3 


Average in Massachusetts, 


7 1-2 


5 3-4 


Average in Texas, 


151-5 


91-4 


Average in Washington State, 


17 


10 


Cost of gas per thousand: 






Hamilton, 0., 


$ 2 


$ 1 


Duluth, 


2 


$1 1-2 and $1 


Wakefield, 


2 1-5 


13-4 


Fredericksburg, 


3 


11-3 


Washington (priv.), 


1.25 


Richmond (pub.) .70 


Pittsburg (priv.), $1.20 and $1 net. 


Wheeling(pub.).75 and 






.56 net. 


Average in Virginia for '91, 


2.11 


1.17 


Average in W. Virginia for '91, 


1.80 


.50 



These tables show in a startling manner the superiority 
of public over private operation of water, gas and elec- 
tric lighting plants. 



Benefits of Co-Ordination. 

Great public benefits result from co-ordination in the 
operation of different public services. Thus it has fre- 
quently been found that water-works and electric light 
plants can be operated together with advantage to the 
public. Such co-ordination exists in Aurora, Batavia, 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. I5I 

Paris, La Salle and Bloomington, 111. ; Columbus, Goshen 
and Martinsville, Ind. ; Marshalltown, la. ; Portsmouth, 
O. ; Dunkirk, N. Y., and in other places. Of the twelve 
cities now operating gas works in this country, Professor 
Parsons says that "all but four (Richmond, Charlottes- 
ville, Fredericksburg and Duluth) have public electric 
plants also, which are more or less co-ordinated with the 
gas works. In Duluth the water and gas plant is one 
institution under a single manager." 

Mr. Baker, writing of water works, says: 

"Under municipal ownership a harmonious develop- 
ment of this and other public works is possible. Water- 
mains may be laid before streets are paved, thus saving 
the damage and expense of tearing up good pavement 
to lay water-pipes. The health and police departments 
may easily work with the water department for the pub- 
lic good instead of the water company being continually 
fearful lest the health board declare its water unsatisfac- 
tory, and being too often ready to resist efforts to se- 
cure a better supply." ("Municipal Monopolies," p. 46.) 



Relief to Taxpayers. 

Notwithstanding the lower rates charged the users or 
consumers and the better service furnished where public 
utilities are operated by the public, they, nevertheless, 
make large contributions to the city treasury. The fol- 
lowing "Lesson in Municipal Ownership" has been pre- 
pared by Mr. C. Augustus Haviland and is reproduced 
here through his kind permission : 



152 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

"LESSON IN MUNICIPAL OWNERSHIP FOR 
TAXPAYERS. 

There are many taxpayers who are led to believe that 
Municipal Ownership will bring burdensome taxation. 

The facts as disclosed by the records in Great Britain 
show directly the reverse, and prove conclusively that 
the vast sums which are here wrested from the pockets 
of the people to enrich a few should be turned directly 
into the treasury of municipalities for the benefit of all the 
people. 

In Great Britain the records of 1904 disclose that in 
the great cities where Municipal Ownership and Munic- 
ipal Operation is in force a large percentage of the 
Municipal Tax is contributed directly through the profits 
upon Gas, Electric Light and Tramway service. 

Here are facts as to some cities in 1904 : 

Liverpool contributed to the Tax Rate: 

From Electric Light profits $51,499 

From Tramway profits .1 160,405 

Manchester contributed : 

From Gas profits 300,000 

From Tramway profits 255,000 

Nottingham contributed: 

From Gas profits 1 03415 

From Electricity 300,000 

From Tramways 65,000 

Blackpool contributed : 

From Gas 74,555 

From Electricity 10,000 

From Tramways 2,500 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 1 53 

Bolton contributed : 

From Gas 81,900 

From Electricity 22,500 

From Tramways 13,700 

Belfast contributed : 

From Gas 102,900 

From Tramways 40,500 

Halifax contributed: 

From Gas 39>5°o 

From Electricity 12,500 

Dewsbury contributed : 

From Gas 26,800 

From Electricity 5,ooo 

Leeds contributed: 

From Gas profits 150,000 

From Tramways 275,000 

Salford contributed: 

From Gas profits 100,000 

From Electricity 22,500 

Southport contributed : 

From Gas profits 56,250 

From Electricity i 3j75° 

Burnley contributed : 

From Gas profits 35>5°° 

From Electricity 20,500 

Birkenhead contributed : 

From Gas profits 30,000 

Leicester contributed : 
From Gas 125,000 

Lincoln contributed : 

From Gas 12,500 



154 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

Nelson contributed: 

From Gas 20,775 

Macclesfield contributed : 

From Gas 25,025 

Oldham contributed: 

From Gas 45*650 

Carlisle contributed: 

From Gas 34>&45 

Coventry contributed: 

From Gas 10,000 

Cardiff contributed: 

From Electricity 15,000 

Darlington contributed : 

From Gas 42,500 

Stockport contributed: 

From Gas 56,000 

West Haven contributed : 

From Electricity 40,000 

Widnes contributed : 

From Gas 81,000 

Rochdale contributed: 

From Gas 65,000 

Kingston-Upon-Hull contributed: 

From Tramway profits 57>5°° 

With this exhibit from the records of 1904 I respect- 
fully submit that all taxpayers are directly interested in 
bringing about Municipal Ownership in American 
cities." 

Municipal ownership and operation of gas and electric 
light plants and tramways are in successful and profitable 
operation in many of the cities in Great Britain. Two 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 155 

hundred and fifty-six municipalities in Great Brtain own 
their own gas plants and furnish gas to all consumers 
with profit to themselves and at lower rates than are 
charged in American cities. In 1903 Manchester made 
a profit for the city of $350,000 while furnishing gas at 
66 cents per thousand ; Birmingham a net profit of 
$280,000, and Belfast $103,000 while furnishing gas at 
60 cents per thousand. Nottingham made $85,665 profit 
while charging only 52 cents per thousand. In Great 
Britain over 155 cities own and operate their own elec- 
tric plants and there are about 200 other municipalities 
entering upon the construction of other plants. Speak- 
ing of this record, Mr. Haviland says : 

"In all the cities operating electric plants the pub- 
lished facts disclose that, while light was being furnished 
at reduced rates, there was profit in nearly every case 
to the municipality, some of the profits reaching as high 
as $500,000 to a single city." (Haviland's "Facts About 
Municipal Ownership in Great Britain. ") 

The record of Municipal tramways in Great Britain 
is equally satisfactory and furnishes an equally convinc- 
ing argument in favor of municipal ownership and oper- 
ation. 

The Municipal Year Book of 1904 says : 

"No branch of municipal enterprise has made such 
rapid progress during recent years as that relating to 
tramways. Almost without exception every large town 
has completely municipalized the tramways or is about 
to do so. The expiration of tramway companies' leases 
coincides with the introduction of new methods of trac- 
tion, and before many years the facilities for rapid transit 
in our great centres of population will be completely rev- 



156 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

olutionized. So municipal corporations, anxious to get 
tramways completely under their control at the earliest 
possible moment, do not in some cases wait for leases 
to expire, but buy out the companies on terms which 
are profitable to the community. It is considered that 
no tramway service can be of the fullest benefit to the 
people unless it is operated as well as owned by the 
municipality. Every town is seeking- to introduce elec- 
trical or other mechanical traction, and, as in the ma- 
jority of cases the corporations own the electric lighting 
supply, the introduction of electric tractions will prove 
of great advantage, since the combination of the two 
public services is bound to result in a higher standard 
of economical working." 

In the cities of Great Britain owning and operating 
their tramways great profits have accrued to the munic- 
ipality. In 1903 the net profit for this service in Aber- 
deen was $123,025; in Bolton $192,500; in Glasgow 
$1,761,795; in Hull $217,020; in Leeds $585,795; in 
Lewisport $868,070; in Manchester $619,855; in New- 
castle $322,545, and in Sheffield $373,830. These net 
profits were all realized with an average rate of fare per 
passenger which was less than three cents. 

The city of London owns 88 miles of its tramways and 
of their public operation in that city the Municipal Year 
Book says : 

"Municipal ownership has benefited not only the gen- 
eral body of rate-payers, but also the tramway employees. 
Both the service and the status of the workmen have 
been improved. Of the advantages conferred upon Lon- 
don in both directions are the following: Relief of the 
tax rate through profits of the undertaking, the institu- 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 157 

tion of all-night car service, the running of workmen's 
cars at reduced rates, reduced fares for ordinary pas- 
sengers on many of the principal routes, the removal of 
advertisements from windows of the cars, the institution 
of a ten-hour day (or sixty hours per week) for all tram- 
way employees, the recognition of the principle of one 
day's rest in seven, increased wages for employees, and 
provision of uniforms for drivers and conductors." 

In Holland, Austria, Germany and Great Britain 
many of the principal cities have established the munic- 
ipal ownership and operation of the gas and electric 
light plants and street railways with satisfactory results. 
In most of the American cities where the principle of 
municipal ownership and operation of the public utilities 
has been recognized the same results have followed. 
Reason and experience, theory and practice, all proclaim 
the benefits of municipal ownership and operation of 
public utilities. 

Lower Rates and Increased Business. 

Municipal ownership and operation means lower rates 
and lower rates mean increase of business and the ex- 
tension of the benefits of public service. 

In Glasgow the fares upon the street railways were 
cut one-third under public operation and the business 
was doubled in about two years. 

Of the Brooklyn Bridge Dr. Max West says : 

"When the railway fare was cut in two in 1885, the 
traffic at once more than doubled, and the receipts, in- 
stead of falling off, were considerably increased." 

With respect to gas, Prof. Bemis has estimated that 
the proportion of consumers to population was 20 per 



I58 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

cent, larger in cities owning public works than in Massa- 
chusetts cities with private works selling at about the 
same average price. 

The record as to water is the same. Prof. Parsons 
says: 

"In 1889 the water commission of Syracuse, N. Y., 
investigated 250 towns and found that, even when prices 
were the same, there was a much greater use of water 
in towns supplied by public works than in towns supplied 
by private companies. The statistics of the 50 largest 
cities in the country collected by the eleventh census 
showed the same." 

Characteristics of Private Operation. 
Secret rebates, discrimination and favoritism, fraudu- 
lent accounts, perjured reports and watered stock — at- 
tributes of private ownership and operation — would dis- 
appear under municipal ownership and operation. These 
characteristics do not exist in the New York water-works 
and there is no reason to suppose that they would be 
more likely to exist in a municipal lighting plant and 
with municipal street railways. Those charged with the 
public administration of these utilities would win dis- 
tinction and popular favor and advancement in the pub- 
lic service by the elimination of these evils and by the 
adoption of a progressive attitude in reference to modern 
improvements and appliances to secure public safety. 
If the department of the city government charged with 
the performance of these services permitted these evils 
to exist or neglected their duties in any respect, such 
neglect would immediately be obvious to the great mass 
of citizens who daily use these services and public opinion 
could cause their speedy correction. 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 1 59 

Prof. Parsons sums the matter up well in the following 
terse sentences : 

"Public ownership is not an absolute guarantee of 
good service, but a public monopoly has at least no in- 
terest opposed to good service. A business is apt to be 
managed in the interests of its owners. If the people 
own the service they will be more apt to get what they 
want than under an antagonistic ownership. The ser- 
vants of the people, with a good civil service, will be 
more apt to do the people's will than the servants of a 
company whose will is opposed to the people and who 
are in the business to get all they can and give no more 
than they must. ,, 

Improved Condition of Labor. 

The improved condition of labor under Municipal own- 
ership and operation is one of the great considerations 
in its favor. The actions of public service corporations 
in dealing with their employees have been characterized 
by requiring long hours, violations of labor laws, and 
the payment of as low wages as possible and the denial 
of the right of laborers to organize. Under private oper- 
ation they are subjected to arbitrary and oppressive reg- 
ulations and are liable to discharge without cause, and 
provisions for their comfort, health and safety are grossly 
neglected. Under municipal ownership and operation 
the very opposite policy would be adopted. Reasonably 
short hours and reasonably high wages would exist, and 
the right of the workers to organize would be recognized. 
Employees upon these public utilities would be subject to 
and protected by Civil Service provisions. They would 
be free from removal except for cause and the actions of 



l6o ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

those discharging them would be the subject of judicial 
review. 

The great strikes and labor battles which now fre- 
quently arise between public service corporations and 
their employees, which waste the capital of the employ- 
ers and the time of the employees, causing great incon- 
venience to the public and frequently resulting in blood- 
shed, would not exist under municipal ownership and 
operation. We never hear of a strike in the Post Office, 
or in the Police or Fire Departments, and if public utili- 
ties were owned and operated by the municipality strikes 
in these public works would be unheard of. In place of 
the present violent and unsatisfactory tests of endurance 
between employees and employers, petitions to the prop- 
er officials followed by investigation would secure the 
redress of grievances while protecting the rights of the 
public. From the decision made by City officials in such 
cases there would always be a final appeal to the ballot 
box where the interests of the employees and the public 
would be awarded at least that decision which the ma- 
jority of voters believed to be right. 

Objections to Municipal Ownership and 
Operation. 

Objections to municipal ownership and operation very 
naturally come from those who through over-conserva- 
tism exaggerate the real difficulties and those who profit 
by the maintenance of the present system of private 
ownership. The objection is frequently urged that this 
new field of public endeavor cannot safely be undertaken 
until the Civil Service system is more firmly estab- 
lished. If public operation would be otherwise advanta- 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. l6l 

geous, this objection furnishes no ground for a failure 
to adopt it. The Civil Service system has come to stay. 
.Its advantages are too obvious and too thoroughly ap- 
preciated for it ever to be done away with. Municipal 
operation of public utilities should and would be under 
strict Civil Service safeguards. The Civil Service system 
has improved slowly as the public have assumed re- 
sponsibility, and as the responsibility under which all 
officials acted has become clearer to the public view. 
If the public can see just where the responsibility lies, 
in the conduct of public affairs, those under this respon- 
sibility will not fail to adhere to Civil Service rules. We 
shall not approach nearer to a realization of the Civil 
Service ideal by shirking our immediate responsibilities, 
but rather by assuming them. The very sensible re- 
marks by Ex-Mayor Josiah Quincy, of Boston, upon 
"The Development of American Cities" made as to mu- 
nicipal ownership are applicable. He said : 

"Any extension of municipal functions must tend to 
arouse a public interest which cannot but assist in im- 
proving administration and hastening the adoption of a 
strict Civil Service system. * * * We should not, 
therefore, wait for a perfect municipal organization be- 
fore we undertake any desirable addition to the service 
now rendered directly by the city, but should be willing 
to trust something to the educating and awakening effect 
of imposing further responsibilities upon a municipal 
government, and thus bringing it into a new and close re- 
lation with the citizens." (The Arena, March, 1897, Vol. 
XVII, No. 88.) 

It is sometimes urged, even by the friends of New 
York City's most unprogressive street railways, that 



l62 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

public operation would be less progressive and that 
improvement under it would be less than exists under 
private operation. This view rests upon the belief that 
private capital takes risks in the introduction of new 
improvements and in experiments which the public could 
not and would not take. There is, however, no reason 
to believe that this is so, and experience under public 
operation has demonstrated that it is not true. The 
officials having charge of the operation of these great 
public utilities should be and probably would be allowed 
a certain part of the profits resulting from public owner- 
ship and operation for the purpose of experiment and 
improvement. Private corporations have been slow to 
introduce improvements or to expend money in making 
necessary experiments because such expenditures would 
reduce the dividends upon their stock. Public officials 
would not be deterred by these considerations. Indeed, 
it is sometimes urged by opponents of municipal opera- 
tion that public officials would be too reckless in such 
expenditures. Under public operation the officials 
charged with the duties of administration would not be 
deterred from making such improvements by fear of 
personal loss and could be prevented from expending 
too great a sum for these purposes by legal prohibition. 
We are sometimes told that the city cannot operate such 
public monopolies successfully. It should never be for- 
gotten in considering this question that ownership and 
operation are distinct and different propositions. To-day 
those who own the gas and electric lighting plants and 
the street railways do not operate them personally, and 
in many cases they do not even direct the manner in 
which they are operated. The sole task of many of the 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 163 

owners of these privileges is to receive the dividends or 
interest upon their stocks and bonds. These public util- 
ities are operated by the salaried employees of the own- 
ers. If the employees of private owners can success- 
fully operate these public utilities, it is difficult to dis- 
cover any reason why the employees of the public can- 
not operate them with equal success. There are some 
persons who, while not opposing the principle of mu- 
nicipal ownership and operation as applied to these pub- 
lic utilities, hesitate to advocate it because they fear that 
under it fraud and political corruption would increase. 
There is no reason to believe in the present condition of 
our politics that fraud and political corruption would 
cease altogether from our politics merely because these 
public utilities were owned and operated by the public. 
But there is very good reason to believe that they would 
be greatly diminished. The existing relations between 
our city government and public franchise-owning cor- 
porations are far from being free from political corrup- 
tion. Upon this aspect of the question the opinion of 
those who have given the problems of municipal gov- 
ernment special study are worthy of the greatest con- 
sideration. Mr. Josiah Quincy says : 

"The power now necessarily wielded by the great cor- 
porations which control such branches of public service 
as lighting and transportation often gives them too great 
an influence over municipal government. It has been 
said that the government must either control the cor- 
porations or be controlled by them. Without fully ac- 
cepting this sweeping declaration, it must be admitted 
that there have been many case& in our American cities 
where corporations have practically dictated the actions 



164 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

of city councils. Their influence over nominations and 
elections where they chose to exert it, may often be a 
determining one. Even a corporation holding a munic- 
ipal franchise that has nothing further to ask of the city, 
and only desires to be allowed to prosecute its business 
without interference, is often drawn into municipal poli- 
tics by the skilfully planned attacks of politicians who 
have purposes of their own in view. In short, the con- 
nection between quasi-public corporations and the city 
is necessarily so close that corporate interests are bound 
to make themselves powerfully felt at times, both by 
their command of capital and by their influence over 
large numbers of employees. (The Arena March, 
1897, Vol. XVII, No. 81.) 

Governor Pingree of Michigan, whose long battle with 
the traction companies qualified him to speak, said : 

"Good municipal government is an impossibility while 
valuable franchises are to be had and can be obtained 
by corrupt use of money in bribing public servants. 
* * * I believe the time has come for municipal 
ownership of street railway lines, water, gas, electric 
lighting, telephone and other necessary public conve- 
niences, which by their nature are monopolies." 

Prof. Parsons gives his valuable testimony to the same 
effect. He says : 

"In studying the effects of public electric works I 
have found many instances in which the purification of 
municipal politics was clearly aided by the change to 
public ownership. And Prof. Bemis, after examining 
the history of the gas works in Philadelphia, Richmond, 
Wheeling and all the other cities having public works 
in 1 89 1, declared that experience in every one of these 
cities, not excepting Philadelphia, had shown that public 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 165 

ownership tends to diminish political corruption." 

Prof. Commons says : 

"I maintain that nine-tenths of the existing municipal 
corruption and inefficiency result from the policy of leav- 
ing municipal functions to private parties ; and that an 
essential part of the present unparalleled awakening 
of civic conscience on the part of all classes of the people 
is the desire for municipal ownership of franchises. As 
the people become aroused to the degradation of their 
politics and to the need of reform their attention is con- 
centrated on the chief source of that degradation, the 
underhanded and the high-handed domination of city 
officials and machine politics by the corporations whose 
life is maintained by city franchises." 

Dr. Albert Shaw says : 

"The. pressure that would be brought to bear on the 
government to produce corruption under municipal own- 
ership of monopolies like gas, electric light, transit, etc., 
would be incomparably less than the pressure which is 
now brought to bear by the corporations.'' 

Prof. Ely says : 

/'Our terrible corruption in cities dates from the rise 
of private corporations in control of natural monopolies, 
and when we abolish these we do away with the chief 
cause of corruption. 'But/ it is said, 'we must take nat- 
ural monopolies out of politics.' It never has been done, 
and it is an impossible thing to do — absolutely impos- 
sible. No gas works, no water works, no street car lines, 
no steam railroads, are as thoroughly in politics as those 
in the United States. Our American railroads are in- 
comparably more in 'politics' than the German rail- 
roads. Not only this ; those German railroads which 



l66 ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 

have been bought by the State, I believe, are less in 
politics than they were when they were private property 
* * * I unhesitatingly advocate public ownership 
and management for gas works and I challenge anyone 
to instance a single American city — or, for that matter, 
any city, wheresoever situated — which has gone over to 
public ownership and which regrets it ; which, indeed, 
has not found that a corrupt political influence was 
thereby removed and political life purified. " 

There is every reason to believe that municipal owner- 
ship and operation of public utilities would mean a great 
cleansing of our municipalities. City governments as 
they are at present constituted are by no means free from 
corruption, it is true, but neither is the management of 
private corporations. Public officials are sometimes 
guilty of favoritism and award responsible positions to 
incompetent relations and friends, but private corpora- 
tions pursue the same policy. The people can trust their 
own public officials better than they can trust the paid 
officials of a corporation operating for private gain whose 
interest is antagonistic to the interest of the public. The 
public official would at all times be subject to a public 
scrutiny which is not possible as to the officials of a pri- 
vate corporation. 

As the chief newspapers of our cities frequently de- 
nounce with great vehemence the principle of public 
ownership and operation and those who advocate it, the 
following extract is interesting as throwing some light 
upon their relations to the great public service corpora- 
tions. Mr. Henry Doherty, of the Columbus, Ohio, Gas 
Company, in an address before the twentieth annual 



ARGUMENTS IN FAVOR OF PUBLIC OWNERSHIP. 167 

meeting of the Ohio Gas Light Association, at Cincin- 
nati, March 18, 1896, said: 

"Keep the newspapers on your staff, also the city au- 
thorities. Now how to do this is sometimes a problem. 
* * * Say you would go to the managers and pro- 
prietors of your newspapers with such a proposition as 
this : 'I have a few shares of stock to sell you on the fol- 
lowing terms ; I will take your note, secured by endors- 
ing the stock over to me, with interest at a rate less 
than the earning capacity of the stock, with the privilege 
of paying it at any time, upon giving sixty days' notice/ 
To be brief, it should be our business to-day to keep the 
stock of our companies distributed among those zvho are 
in a position to promote the welfare of our business/' 
(Quoted by Prof. Bemis in "Municipal Monopolies, " 

P- 659O 

By the retention, acquirement or resumption of public 

franchises and the ownership and operation of public 

utilities, the city's wealth is greatly increased and the 

city is made stronger for every good work. 



l68 LEGAL METHODS BY WHICH THE CITY MAY 

CHAPTER IX. 

Legal Methods by Which the City May Acquire 
and Operate Its Public Utilities. 

Having determined that it is desirable that the city 
should own and operate its gas and electric lighting 
plants and street railways, the question naturally pre- 
sents itself as to the legal power of the city and the meth- 
ods and means by which it can acquire and operate these 
public utilities. That public franchises while in private 
hands are private property is no longer open to discus- 
sion, and, like all other private property rights, they may 
be taken by the State or cities when authorized, for a pub- 
lic use by the exercise of the police power, the power of 
taxation or the power of eminent domain (People ex rel. 
vs. The Mayor of Brooklyn, 4 N. Y., 419). 

The City's Powers — Home Rule. 

A city or municipal corporation is the creature of the 
State and it possesses only those powers which are specifi- 
cally conferred upon it or are necessarily implied from 
those powers which are specifically granted. 

The city of New York enjoys but a small measure 
of Home Rule. The Legislature has for many years 
past regarded New York City simply as a subject prov- 
ince to be plundered. Acting upon this principle self- 
government has been denied to the city and it has been 
subjected to oppressive and tyrannical regulations. 

The city of New York will never enjoy true Home Rule 
or self-government until the State Constitution is so 
amended as to guarantee Home Rule to the cities of the 
State. At present even where- the Legislature has con- 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 169 

ferred powers upon the city, these powers are liable to 
be withdrawn at any time by the same power that orig- 
inally conferred them. 

Even under present laws the city of New York enjoys 
large police powers for the enforcement of police and 
health regulations. It would seem that furnishing light 
and decent transportation for the people of the city is 
an absolute necessity upon which the health and safety 
of the inhabitants of the city is dependent. This much 
would probably be admitted by all, but the contention 
is made that these powers can lawfully be performed by 
private corporations only. If the city can confer the 
power to perform these public functions upon private 
corporations, it is difficult to understand why it cannot 
itself perform them. If Xew York City owns the streets 
and highways as trustee for all the people of the State 
and can confer the power upon a railroad corporation to 
lay tracks and run cars, why should not the city itself 
be empowered to perform this function for the benefit 
of the whole people? The street or highway does not 
lose its public character by reason of a street railroad be- 
ing operated in it. Indeed, its efficiency or effectiveness 
as a highway is increased by reason of its being put to 
this use. If the city of New York is the owner of the 
sub-surface of the streets in trust for the use of the people 
of the State, and can, through the Rapid Transit Com- 
mission, build and then grant the right to private cor- 
porations to operate railroads under the streets, why 
should it not be able to reap the fruits of its ownership 
and operate such railways for the good of its citizens? 
It is an old and true saying that "property without use 
is an empty sound. v To hold that the city owns the streets 



170 LEGAL METHODS BY WHICH THE CITY MAY 

whether on, over or under the surface, but that it cannot 
use its property is to deny to the city its right of property. 
For the city to be said to own the the roads and rights of 
way which are built by the money of its taxpayers and for 
it to be obliged to turn over the use of this valuable prop- 
erty to private corporations is absolutely absurd. That 
the people of New York City are so foolish and careless 
of their own interests as to permit this would be amus- 
ing if it were not so deplorable. It is perfectly evident 
that the anomalous and ridiculous condition of the law 
which permits this situation to exist has been brought 
about by the public service corporations. While the 
people have been attending to their own private affairs 
and neglecting their public duties the corporations have 
written their laws for them. 

There are no decisions of the courts in this State bear- 
ing directly upon the question as to whether the right 
of the city to furnish light and decent transportation can 
be exercised where no special statutory authority has 
been conferred. There is, however, a decision from the 
highest court of Indiana which fully sustains this view. 
In the case of the City of Crawfordsville vs. Braden, 130 
Ind., 149, the Court considered this whole question. 

In this case it was held, that the police power primarily 
inheres in the State, but that the Legislature may dele- 
gate at least a part of it to Municipal corporations either 
in express terms or by implication arising from the fact 
of the creation of a city. It was also held that the power 
to light the streets and public places of a city is one of 
its implied and inherent powers, necessary to properly 
protect the lives and property of its inhabitants and as a 
check on immorality, and that no statute was necessary 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. I7I 

to give it this power. The court further held that the 
power to light the city carries with it incidentally the 
further power to procure or furnish whatever is neces- 
sary for the production and dissemination of the light, 
and that a city has the power to establish works for 
lighting its streets and may in connection therewith fur- 
nish private consumers such light by contract. 

It is, however, unfortunately true that the courts do 
not always take so favorable a view of the public rights. 
While it is well to bear in mind the police power of the 
city in dealing with the public service corporations, it 
would hardly be safe to rely solely upon this implied 
power to justify the right of the city to own and oper- 
ate its own public utilities. It becomes important, there- 
fore, to inquire as to what specific powers in this respect 
have been conferred upon the city of New York by the 
State Legislature. 

A Municipal as Distinguished from a Public Light- 
ing Plant. 

In considering the question of public lighting, a dis- 
tinction must be observed between the municipal opera- 
ton of a lighting plant for the sole purpose of lighting 
the streets, public highways and other public places and 
a municipal lighting plant which shall have power to do 
this and also to furnish light, heat and power to all the 
consumers within its limits. The first plan is not real 
municipal ownership and operation; though it is some- 
times so claimed to sidetrack the movement for true 
municipal ownership and operation. If the lighting com- 
panies now furnish good light at reasonable prices and 
do not rob the consumer, there is no reason for a public 



172 LEGAL METHODS BY WHICH THE CITY MAY 

plant of any description. If, on the other hand, the 
companies furnish inferior light at unreasonably high 
prices and do rob the consumer, then a method which 
prevents this imposition only upon the city while permit- 
ting it to continue as to all the people in the city is 
wholly inadequate as a remedy. The suggestion that a 
municipal lighting plant is needed for municipal purposes 
but not for public purposes admits the necessity of relief 
from the extortion of the Lighting Trust. A municipal 
lighting plant operated solely for municipal purposes, 
and not for public purposes would be conducted under 
the most disadvantageous circumstances possible. Mani- 
festly when such a plant is once established its success 
will depend largely upon the volume of business which 
it is able to transact. To prohibit such a plant from 
supplying the public is to withhold opportunities for 
profit from it and to deny the public relief from the 
extortion practiced by the lighting companies. The sug- 
gestion for the establishment of a municipal lighting 
plant which shall not be permitted to serve the public, 
comes, as might naturally be expected, only from those 
who are hostile to municipal ownership and operation 
of public utilities. This is the policy of those now con- 
trolling the present administration in New York City. 
No one has given it clearer expression than Mayor Mc- 
Clellan himself. 

Speaking of Municipal Ownership, he said : 
"I am in favor of Municipal Ownership and operation 
of an electric lighting plant to light the streets, parks 
and public buildings of New York. I do not believe 
that government should engage in any services that can 
be done better or as well by private enterprise, or should 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 1 73 

invade business fields in competition with the legitimate 
trade of the citizen. " 

The Mayor of the city, therefore, apparently labors 
under the impression that the performance of these pub- 
lic utilities upon which the health and welfare of the 
whole people depends is a part of "the legitimate trade 
of the citizen." The Lighting Trust and the street rail- 
ways labor under the same impression. As both the cor- 
porations and the city authorities are in entire agreement 
and hold the same view, the public cannot at present 
expect any relief from either. Nor will any relief be had 
until the principle is clearly recognized and applied that 
the performance of these public services is in the high- 
est sense public and not private business. 

The project for a municipal but not a public lighting 
plant need not be further discussed. It is merely a po- 
litical expedient brought forward to prevent consider- 
ation of real municipal ownership and operation and in 
the vain hope that its advocacy will deceive the public. 

The City's Rights When Franchises Have 
Expired. 

When the charter prescribes the term of the existence 
of the franchise and the term has expired the franchise 
ceases to exist. The dissolution in such cases need not 
be judicially declared ; it is decreed by the power grant- 
ing the franchise. The limited time of existence having 
expired the franchise is de facto dead. (Sturges vs. Van- 
derbilt, 73 N. Y., 384, 390.) 

The Greater New York Charter in Section 73 goes 
further than this. It not only declares that such fran- 
chise rights shall at the termination of the period for 



174 LEGAL METHODS BY WHICH THE CITY MAY 

which they were granted cease without compensation, 
but specific power is conferred upon the city to operate 
under such expired franchises or to lease them for lim- 
ited periods. 

Section 73 of the Greater New York Charter provides 
as follows: — "At the termination of any franchise or 
right granted by the Board of Aldermen all the rights 
or property of the grantee in the streets, avenues, waters, 
rivers, parkways and highways shall cease without com- 
pensation. Every such grant of a franchise and every 
contract made by the city in pursuance thereof may pro- 
vide that upon the termination of the franchise or right 
granted by the Board of Aldermen the plant of the 
grantee with its appurtenances shall thereupon be and be- 
come the property of the city without further or other 
compensation to the grantee ; or such grant and contract 
may provide that upon such termination there shall be a 
fair valuation of the property which shall be and become 
the property of the city on the termination of the contract 
on paying the grantee such valuation. If by virtue of 
the grant or contract the plant is to become the city's 
without money payment therefor, the city shall have the 
option either to take and operate said property on its own 
account or to lease the same for a term not exceeding 
twenty years. If the original grant shall provide that 
the city shall make payment for the plant and property 
excluding any value derived from the purchase ; and if the 
city shall make payment for such plant it shall in that 
event have the option either to operate the plant and 
property on its own account or to lease the said plant 
and property and the right to the use of the streets and 
public places in connection therewith for limited periods 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 175 

in the same or similar manner as it leases the ferries or 
docks." 



The Lighting Situation. 

Applying this section to the existing situation and fran- 
chises of the lighting companies, the course which the 
city should pursue becomes perfectly clear and plain. 

So far as the Gas Companies are concerned, nearly all 
of the franchises under which these companies operate 
have expired and those that have not will shortly ex- 
pire. The gas companies have no rights in the streets of 
the city. The Greater New York Charter distinctly de- 
clares that "at the termination of any franchise or right 
granted by the Board of Aldermen all the rights or prop- 
erty of the grantee in the streets, avenues, waters, rivers, 
parkways and highways shall cease without compensa- 
tion" 

The city is not, therefore, obstructed in the course 
which it should pursue by the necessity of buying out 
at greatly inflated prices the franchises of the gas com- 
panies. As to them, at least the road is perfectly clear 
and unobstructed. The existing law permits the city to 
take one of two courses. If the plant which the gas com- 
pany has, exclusive of its franchise, is worth having, the 
city may purchase it upon payment of a "just compensa- 
tion, " or, if it is not worth purchasing, the city may con- 
struct an entirely new plant. 

If under the grant or contract by which the franchise 
was conferred the plant is to become the city's without 
money payment therefor, the city shall have the option 
either to take and operate said property on its own ac- 



176 LEGAL METHODS BY WHICH THE CITY MAY 

count or to lease the same for a term not exceeding 
twenty years. 

Where the franchise does noi make provision for pay- 
ment by the city for the plant, the franchise rights "shall 
cease without compensation, " and in such case the power 
is clearly and explicitly conferred upon the city 
"either to take and operate the said property on its 
own account or to lease the same for a term not exceeding 
twenty years." No more complete or comprehensive 
grant of power than that which exists is necessary to 
enable the city to operate a gas plant where it is not re- 
quired to buy existing plants because of the expiration 
of gas franchises. 

When the original grant provides that the city "shall 
make payment for the plant and property," the statute 
clearly prescribes that "if the city shall make payment 
for such plant it shall in that event have the option 
either to operate the plant and property on its own ac- 
count or to lease the said plant and property." 

The present status of the city, therefore, is plain. If 
the franchises of the gas companies that have expired, 
or which will shortly expire, do not require the city to 
buy existing plants, the city may itself operate or lease 
the right to operate. 

If the franchises of the gas companies do require the 
city to buy existing plants at the expiration of the fran- 
chise grants, the city may, upon making such purchase, 
itself operate or lease. 

In any event, no matter what the franchise may pro- 
vide, inasmuch as they have all expired or will soon ex- 
pire, so far as supplying gas is concerned, the city has the 
option either to lease the right thus granting new fran- 
chises, or it may operate a gas plant itself. 



acquire and operate its public utilities. 177 

The Stevens' Committee Bills. 

In considering the present status of the city in refer- 
ence to the lighting monopoly, it is necessary to con- 
sider the bills that were recommended by the Stevens 
Committee as the result of its investigation and the leg- 
islation which has resulted from these recommendations. 

The committee recommended and the Legislature 
enacted laws fixing the price of electric current for heat, 
light and power purposes in the Boroughs of Manhattan 
and Brooklyn and in that part of the Borough of The 
Bronx west of the Bronx River, at a maximum of ten 
cents per kilowatt hour of current actually consumed; 
and fixing the price of arc lamps for street lighting in 
the city of New York at $100 per lamp per year for 
single arc lamps of 2,000 candle-power, consuming 450 
watts at the arc, and that the price of twin arc lamps, 
consuming 250 watts each at the arc, should be fixed 
at $65 each per year. 

It was also recommended and enacted by the Legis- 
lature that the city of New York be given authority to 
utilize water power, now owned or hereafter acquired 
by it, for the purpose of generating electric current for 
the use of the municipality, "provided that no addi- 
tional water shall be used for said purpose than would 
otherwise be required by the city of New York/' This 
last provision seriously affects the power of the city and 
is a most unfortunate piece of legislation. 

A bill was also recommended which became a law 
creating a State Commission composed of appointees of 
the Governor and conferring comprehensive powers for 
the purpose of regulating and controlling the gas and 
electric lighting companies. 



178 LEGAL METHODS BY WHICH THE CITY MAY 

In reference to this bill the committee in their report 
say that : 

"The plan of providing a commission paid by the 
State and invested with ample power has worked most 
satisfactorily in other States, and there is every reason 
to believe that a similar plan put in operation here will 
prevent a recurrence of the mischiefs revealed in this 
investigation/' 

That the committee in entertaining this belief labored 
under a delusion is sufficiently apparent from the expe- 
rience of other States. Instead of this plan having 
worked satisfactorily in other States, as the committee 
assert, it has been an utter failure so far as exerting real 
control over the companies. This conclusively appears 
in the work of the Massachusetts Gas Commission, which 
has already been discussed. This law is objectionable 
also in that it violates the city's right of Home Rule, by 
creating a State Commission to regulate matters which 
ought to be in the control of the city. It creates a large 
amount of political patronage for the political party con- 
trolling the State government. It is difficult to under- 
stand how any class in the community, except the bene- 
ficiaries of the political patronage, will derive any benefit 
from it. So far as the commission controlling or regu- 
lating the lighting companies is concerned, the bill will 
be a failure. It is much more probable that the light- 
ing companies will control and regulate the commission 
than that the commission will control and regulate the 
lighting companies. That the lighting companies do not 
take this law very seriously was evident from the fact 
that they made but little opposition to it and that the 
price of the stocks of the companies rose in the market 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 1 79 

as soon as it was known that the bill had become a law. 

This law contains one provision which is positively 
vicious. That provision enacts that : 

"No municipality shall build, maintain and operate 
for other than municipal purposes any works or systems 
for the manufacture and supplying of gas and electricity 
for lighting purposes without a certificate of authority 
granted by the commission upon satisfactory evidence 
that the municipality is not at the time adequately sup- 
plied with gas and electricity or that the existing supply 
thereof is improper and not of the required standard, 
or that provisions have been made as provided by law 
for the acquisition of existing works or systems. " 

It would seem that this provision was designed to 
make the city's rights subject to the action of the com- 
mission. It will be noticed, however, that it does not 
repeal any existing law which confers power upon the 
city, but merely makes it necessary to obtain a certificate 
of authority from the commission. It would seem, how- 
ever that the commission would not have the right to 
refuse such certificate in any one of the three cases speci- 
fied in this section. 

Thus if it could be shown by satisfactory evidence that 
(i) the city was not adequately supplied with gas or elec- 
tricity or (2) that the existing supply was improper and 
not of the required standard or (3) that provisions have 
been made as provided by law for the acquisition of ex- 
isting works or systems, the commission CQuld probably 
be compelled to grant such certificate. Certainly if sat- 
isfactory evidence of either of these three conditions 
should be presented, the Board could not arbitrarily re- 
fuse to issue its certificate. If it should attempt to do 



l8o LEGAL METHODS BY WHICH THE CITY MAY 

so, doubtless the courts in a proper case could compel 
the commission to issue it. There is little doubt as long 
as light is supplied by private corporations that the first 
and second conditions specified could be established by 
satisfactory proof. It is worthy of notice also that the 
certificate may issue when "provisions have been made 
as provided by law for the acquisition of existing works 
or systems." Such provisions have been specifically 
provided by law in Section 73 of the Greater New York 
Charter, and this provision is in no way repealed or 
modified by this new law. Thus the right of the city 
to operate under the franchises specified in Section 73 
is in no way impaired, although, perhaps, additional con- 
ditions must be complied with on account of this very 
objectionable provision of this new law. 

The chief recommendation of the committee was that 
the price of gas sold in the Boroughs of Manhattan and 
Brooklyn and in that part of the Borough of The Bronx 
west of the Bronx River, should be fixed at a maximum 
of seventy-five cents per thousand cubic feet. Notwith- 
standing this recommendation that the maximum price 
be fixed at 75 cents, the bill which was introduced fixed 
80 cents as the maximum. This bill aroused the active 
opposition of the gas companies. Indeed, it was the 
only bill recommended that they were seriously opposed 
to, and this bill they succeeded in defeating. The non- 
partisan action of the Legislature upon this bill is worthy 
of special attention. The bill was defeated by a combi- 
nation of the Republicans and Democrats. It was the 
same kind of a combination that the traction companies 
effected to defeat the Elsberg bill, to which reference 
has already been made. It is useless to discuss whether 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. l8l 

the Republican party or the Democrat party is most to 
blame for the defeat of this bill. The Republicans had 
a large majority and could have passed the bill if they 
had so desired, but the actual vote cast shows that the 
votes of five Democratic Senators from New York City 
actually defeated the bill. The sincerity of these Demo- 
cratic statesmen will at once be perceivd when it is re- 
called that in the early part of the session, when it 
seemed that no gas bill at all would pass, and they were 
anxious to place their Republican friends in a "hole," 
they had introduced bills fixing the price of gas at 60, 
70 and 75 cents and had loudly denounced the plan to 
fix 80 cents as the maximum. Yet when the opportunity 
to vote came, Republicans and Democrats combined to 
defeat the 80 cent gas bill and to continue the present 
•rate of $1. There are a few people in the community 
of suspicious natures, who, in contemplating the action 
of the Legislature upon this bill, have been so unchar- 
itable as to suppose that the gas trust may not have used 
absolutely honest methods in effecting the defeat of this 
bill. 



The Street Railway Situation. 

As to the street railways of the city whether they be 
over the streets, as the elevated roads, or on the streets, 
as the surface roads, or under the streets, as the subway, 
the whole matter is, under existing law, exclusively 
within the jurisdiction of the Rapid Transit Commission. 
The Commission has power to grant franchises or to 
contract for the constructor of new roads and to lease 
them to private corporations. It is without power to 



l82 LEGAL METHODS BY WHICH THE CITY MAY 

operate them on behalf of the city. We have already 
seen that the Elsberg bill, which sought merely to confer 
power upon the city to operate them if advantageous 
terms could not be obtained from the corporations, was 
opposed by the Rapid Transit Commission and failed of 
becoming a law. 

Before any step can be taken toward the public owner- 
ship and operation either of existing street railways or 
those that are to be built, legislation is absolutely neces- 
sary except where existing franchises shall expire. When 
they do expire, then it would seem clear that under Sec- 
tion 73 of the Greater New York Charter the city 
would have the option of leasing or itself operating un- 
der such franchises. 

As many of the existing surface and elevated railroad 
franchises still Have long terms to run, the present con- , 
dition of the law as to these franchises is, so far as the 
city's interests are concerned, unsatisfactory. 

It is obvious that an enabling statute should be passed 
by the Legislature which would in clear and compre- 
hensive terms confer upon the city complete home rule 
as to the acquirement and operation of its street railways 
and all other public utilities when the adoption of that 
policy shall seem to be wise. 

The city has, however, a more vital and immediate 
interest in the disposition that is to be made of. the new 
subway franchises. Even if the city had complete power 
to acquire existing street railways upon payment of just 
compensation to their present owners, it would clearly 
be better for the city first to build and successfully oper- 
ate its new subway railroads than for it to commence 
by acquiring the franchises of existing companies. If 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 183 

the new subways could be laid out with a view solely 
of promoting the interests of the city and not of strength- 
ening and benefiting private corporations, it is obvious 
that the city would hold the position of greatest advan- 
tage. The existing franchise owning corporations would 
be at the mercy of the city instead of the city being 
placed in a position where it must look to them for 
mercy. With the city owning and operating a great 
system of subway railroads, it is clear that when it was 
ready to acquire existing street surface and elevated rail- 
road franchises it could easily do so upon terms advan- 
tageous to the city. If the city shall retain the owner- 
ship of its present rights in underground New York and 
properly develop them, the railroad corporations will not 
long be able to compete with it. 

If the city's rights are to be preserved, action must 
speedily be taken, because, with the authority now vested 
by law in the Rapid Transit Commission, this commis- 
sion has power to completely foreclose the people's 
rights in this vast territory and to surrender them for 
long terms of years or in perpetuity to private corpor- 
ations. 

All that the city of New York needs to permit it to 
retain these valuable privileges and to receive the bene- 
fits that would come from their public operation is legis- 
lation which shall confer power upon the city to operate 
for its own benefit the new subways that are to be built. 

Until such legislation is enacted as will confer this 
power to operate upon the city, it is clear that the Rapid 
Transit Commission should lay out a comprehensive 
system of subway lines, which, while connecting with 
existing lines, should at the same time be capable of in- 



184 LEGAL METHODS BY WHICH THE CITY MAY 

dependent operation, so that if existing companies refuse 
to accept them on the city's terms, they could be leased 
to competitors or ultimately be operated by the city. 
The Rapid Transit Commission have adopted the ver> 
opposite policy. Thus where routes are laid out in the 
interests of private companies, the city is entirely at the 
mercy of these companies, whereas if general plans in 
the public interest were laid out, the traction companies 
would be entirely dependent upon the city. The new 
subways should be planned and built iti the manner in- 
dicated and until the city acquires the right to retain 
and operate them they should only be leased for short 
terms upon adequate compensation to the city, with the 
right reserved to the city to terminate the lease at its op- 
tion upon payment of an indemnity. By this method 
the city would preserve an effective control over the sub- 
ways while they are in private hands and as soon as the 
city became legally and financially able to acquire them 
for public operation it could do so without unreasonable 
expense. Such a policy would keep the whole of under- 
ground New York under the ownership and control of 
the city. It would make every existing street railroad 
company operating in the city dependent upon the city, 
which could dictate terms to it. The future /of the 
gas and electrical supply of the city will be dependent 
largely upon the. pipe galleries which are to be con- 
structed in connection with the future transit subways. 
The importance to the city of the present position which 
it holds cannot be overestimated. By insisting upon its 
present position, the city may secure its rights for all 
time to come, or by surrendering them and continuing 
the practice pursued by the Rapid Transit Commission 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 185 

of laying out new routes in the interest of private com- 
panies it may be foreclosed of these rights. The whole 
matter is within the jurisdiction of the Rapid Transit 
Commission. That Commission has absolute power, sub- 
ject, however, to its obtaining the consent of the "local 
authorities" of the City of New York. Until 1905 a ma- 
jority vote of the Board of Aldermen and the approval of 
the Mayor and in case of the failure of the Mayor to ap- 
prove, then a two-thirds vote of the Board of Aldermen 
w 7 as deemed to be "the consent of the local authorities of 
such city." During the last session of the Legislature the 
Rapid Transit Act was so amended as to constitute the 
Board of Estimate and Apportionment in the City of New 
York the local authorities, and to make the plans and 
conclusions of the Rapid Transit Commission subject 
to the approval of this Board. The Board of Estimate 
and Apportionment consists of the Mayor, Comptroller, 
President of the Board of Aldermen and the five Bor- 
ough Presidents. All of these officials are to be elected 
at the next city election for a term of four years. Thus it 
will be seen that the whole matter is practically in the 
control of the people of the city and that they have it 
within their power to conserve the city's rights to its 
franchise wealth and to insist upon the proper operation 
of its public utilities, or they may permit the surrender of 
this wealth to private corporations and continue to suffer 
from the extortion and poor service which they have 
heretofore experienced. 

Perhaps the best remedy that could be applied would 
be abolition of the present Rapid Transit Commission 
and the vesting in a local board responsible to the people 
of the city of the powers now enjoyed by the Commis- 



1 86 LEGAL METHODS BY WHICH THE CITY MAY 

sion, together with the right to operate such railroads. 
It is entirely true that questions of rapid transit ought 
to be administered by experts and that continuity of 
service is conducive to securing greater efficiency. But 
this benefit would be equally available by the creation 
of a local board which was responsible either directly 
or indirectly to the people. 

When the power to acquire public franchises or other 
property exists in the city, the present laws requiring 
the payment of just compensation and prescribing the 
manner in which condemnation proceedings are to be 
conducted are sufficiently comprehensive to permit the 
city to proceed under them to acquire its public utilities. 
The exercise of the right of eminent domain entails no 
hardship or injustice upon either the city or the corpora- 
tions whose property rights are thus taken. In every 
case the city would be required to pay "just compensa- 
tion, " and if the corporations received this measure of 
compensation no injustice could be done to them. 

Methods of Securing Ownership and Operation. 

Where the city has power to operate public utilities 
it may either pay for the acquirement of existing fran- 
chises and plants, or it may raise the money necessary 
for the construction and operation of new lighting plants 
or railroads. 

This may be done by pledging the city's credit by is- 
suing bonds or by the sale of public service certificates 
which shall be secured by a mortgage upon the plant 
for the acquirement, or construction and operation of 
which the certificates were issued. 

Both of these methods should be carefully considered 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 187 

and both are safe and practical means of accomplishing 
public ownership and operation of public utilities. The 
manner of raising the money necessary to ac- 
quire, construct or operate public utilities is the 
question about which there exists the greatest 
confusion of thought and upon which many base 
their opposition to municipal ownership and oper- 
ation. This is essentially the business aspect of the ques- 
tion which must be thoroughly understood and appre- 
ciated before we can expect that the cause of municipal 
ownership and operation will be generally accepted. 
The profitableness of publicly owning and operating pub- 
lic utilities has already been demonstrated and the means 
by which the necessary funds can with safety to the city 
be raised so as to permit the city to avail itself of these 
opportunities for profit can be demonstrated with equal 
clearness. 

First — Pledging the City's Credit by the Sale of 

Bonds. 

Under existing law the city has the power to issue 
bonds and to incur indebtedness for "City Purposes" to 
the extent of ten per cent, of the assessed value of its 
real estate. 

Article 8, Section 10 of the State Constitution, pro- 
vides as follows : - 

"No county or city shall be allowed to become indebted 
for any purpose or in any manner to an amount which, 
including existing indebtedness, shall exceed ten per 
centum of the assessed valuation of the real estate of 
such county or city subject to taxation, as it appeared by 
the assessment-rolls of said county or city on the last 



1 88 LEGAL METHODS BY WHICH THE CITY MAY 

assessment for State or county taxes prior to the in- 
curring of such . indebtedness ; and all indebtedness in 
excess of such limitation, except such as may now exist, 
shall be absolutely void, except as herein otherwise pro- 
vided." 

Two limitations are placed upon the borrowing power 
or capacity of the city. First, that the purpose for which 
the city raises the money shall be a "City Purpose," and, 
secondly, that it shall not borrow in excess of or beyond 
its "debt limit." Both of these terms must be clearly 
understood. It is necessary, therefore, to define what is a 
"City Purpose" and the nature and meaning of the city's 
"debt limit." 

What comes within the designation of a "City Pur- 
pose" has been already defined by the courts of the State. 

What Is a City Purpose? 

The question as to what is properly a City Purpose 
was fully discussed in the case of Sun Publishing Assn. 
vs. The Mayor, etc. (8 App. Div., 230 and 152 N. Y., 

251). 

The question before the court was whether a rapid 
transit railroad, wholly within the limits of a city, was a 
city purpose. Judge Haight in rendering the opinion of 
the Court of Appeals made it perfectly clear that a rail- 
road owned by the city is a city purpose. He said : 

"Common highways are clearly within the provisions 
of the constitution for a 'city purpose/ Railroads, as 
we have shown, are highways, and constructed for the 
same purpose as the common highways. They are nec- 
essary for the common welfare of the people, re- 
quired for their use, public in character and authorized 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 189 

by the Legislature, and when constructed and owned 
by the city are for a 'city purpose' within the meaning 
of the constitution." 

It has also been held that the moneys which were used 
in acquiring the New York and Brooklyn Bridge prop- 
erty were expended for a "city purpose. " (People ex. 
rel. Murphy vs. Kelly, 76 N. Y., 475.) 

In the case of Hequemsbourg vs. City of Dunkirk (49 
Hun, 553), the Board of Water Commissioners of the 
City of Dunkirk were authorized to supply not only the 
city, but its inhabitants with electric light. This was held 
to be a "city purpose" within the provisions of the con- 
stitution. The rule was laid down that the municipality 
was not limited to the mere duty to supply the city with 
light, but that it might, "in its discretion, in connection 
with lighting the streets/' also supply citizens with light 
in their private dwellings. "Numerous cases," said the 
court, "have arisen in which large and extensive water 
works had been established for the purpose of supplying 
cities and villages with pure and wholesome water. In 
such cases water has been furnished to private consumers 
at fixed rates, and the power to do this has been sanc- 
tioned by the courts and are properly exercised by the 
municipal government, pure and wholesome water being 
recognized as necessary to preserve the public health. 
And in various cities gas works have been established 
in which light has been supplied by the municipality to 
private residences at a fixed charge, as well as used for 
lighting of the streets." (Citing Dillon on Municipal 
Corp., s. 27; Wheeler vs. Philadelphia, 77 Penn. St., 338; 
Western Saving Fund Society vs. City of Philadelphia, 
31 id., 175; Lehigh Water Co.'s Appeal, 102 id., 515.) 



I90 LEGAL METHODS BY WHICH THE CITY MAY 

The case cited from JJ Penn. St., 338, clearly lays 
down the rule that the municipal corporation is not lim- 
ited to acts within the line of its necessary duty to its 
citizens. 

"While it is no part," said the court, "of the ordinary 
and necessary duties of a municipal corporation to sup- 
ply its citizens with gas and water, it is, nevertheless, 
true that it may lawfully do so." 

From these decisions there is no doubt that the opera- 
tion of gas and electric lighting plants and street rail- 
ways by the municipality is a "city purpose," within the 
meaning of that term as it is used in the constitution. 

The "Debt Limit." 

Under the State Constitution (Art. 8, Sec. 10) the city 
cannot issue bonds or incur any debt in excess of ten 
per cent, of the assessed value of the taxable real estate 
within the municipality. Thus if the city incurs a small 
debt to acquire a very valuable income producing prop- 
erty, the borrowing capacity of the city is less than be- 
fore it increased its assets. By our present method of 
financiering our assets are charged against us as liabili- 
ties. Thus the borrowing capacity of the city is unreas- 
onably limited and the city is thereby prevented from 
making expenditures for many necessary municipal im- 
provements. All of the city's income producing proper- 
ties, even though acquired by the issue of bonds, ought 
to be counted as assets rather than reckoned as debts 
and the bonds issued to secure them ought not to be in- 
cluded in the city's debt limit. Thus, although last year 
the receipts of the city from water rates produced a net 
profit of about $2,500,000, the bonds that were issued 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. I9I 

to pay for the water supply system impaired the borrow- 
ing capacity of the city and were charged against its 
credit. So, also, with the dock property owned by the 
city. Although it yields a net profit to the city, the bonds 
issued for its improvement impair the city's borrowing 
capacity. 

A constitutional amendment should be adopted which 
would change this anomalous condition and discriminate 
properly between the city's assets and its debts. All 
bonds issued to acquire properties which produce profit 
and revenue for the city should be excepted from the 
debt limit. At the next election, in November, 1905, 
a proposed constitutional amendment will be submitted 
to the people excepting from the debt limit all water 
bonds of the city of New York issued after January 1, 
1904. This amendment should be adopted and it will to 
some extent increase the city's borrowing capacity. It 
will give the city a somewhat larger margin of credit 
upon which it can draw for the construction of necessary 
public improvements than it at present possesses. 

Even under the existing law, unfair to the city as it 
is, the debt limit has not yet been reached. Within the 
existing margin, therefore, the city is entirely free to 
borrow money for the purpose of constructing and oper- 
ating a gas plant, or for the acquirement of existing 
plants wherever the gas franchises have expired, or for 
the increase of transit facilities. 

The condition of the city's finances in relation to its 
borrowing capacity or margin for incurring indebted- 
ness on October 1st, 1904, was as follows: 
Ten per cent, of the assessed valuation 

of real estate for the year 1904 $501,546,377.90 



192 LEGAL METHODS BY WHICH THE CITY MAY 

Net funded debt (exclud- 
ing county indebted- 
ness) $358,442,858.90 

Net contract liability (in- 
cluding Rapid Transit 
construction, Manhat- 
tan and The Bronx, 
originally as $35,000,- 
000 and extra work 
amounting to $4,500,- 
000. Brooklyn-Man- 
hattan as $2,000,000). 43,072,393.41 

Liability for lands ac- 
quired 11,174,398.59 

Liability for judgments 

(estimated) 2,000,000.00 414,689,650.90 



Margin or excess of ten per cent, of as- 
sessed valuation over debt 86,856,727.00 

From this margin or excess must be de- 
ducted Revenue Bonds of 1902 issued 
in 1903, outstanding Oct. 1, 1904.... 530,000.00 



Balance of excess of ten per cent, of 

assessed valuation over debt $86,326,727.00 

This balance at th'e present time is probably somewhat 
less than it was October 1st, 1904. In round numbers/ 
it is estimated that on April 1st, 1905, the balance of ex- 
cess of ten per cent, of assessed valuation over debt was 
at least over $75,000,000. 

It is estimated that the normal increase per annum 
of the city's borrowing capacity will be between $30,- 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. I93 

000,000 and $35,000,000 and that the obligations which 
will necessarily be issued for ordinary requirements 
can be kept within this limit. If this is done, this margin 
will be available for public works, such as water supply, 
rapid transit, or the establishment of a lighting plant. 

Second — Issuing Public Service Certificates. 

Although the city would be perfectly safe in pledging 
its credit within the limits prescribed by the constitution 
for the construction, acquirement and operation of its 
public utilities, there is a much less difficult and more 
satisfactory way of raising the money necessary for this 
purpose. The city should be empowered as the city of 
Chicago has been empowered in respect to its street 
railways, to issue and to sell to private persons or cor- 
porations, interest bearing public service certificates in 
order to raise money for the acquirement, construc- 
tion and operation of its public utilities. These pub- 
lic service certificates should be secured by the execu- 
tion of a mortgage or deed of trust to a trustee for the 
benefit of the holders of the certificates. This mortgage 
or deed of trust should provide that the certificates should 
be a lien upon the plant acquired and that under no cir- 
cumstances should they constitute a liability of the city. 
In the event of default in the payment of the interest 
or principal upon these public service certificates, the 
mortgage could be foreclosed and the plant sold, 
and the purchaser might acquire a twenty year fran- 
chise The provision for the possible failure of 
the city to pay its interest or principal accomplishes 
two purposes. First, it makes the certificates good 
security for the money advanced and thus there 



194 LEGAL METHODS BY WHICH THE CITY MAY 

would be no difficulty in raising the necessary 
money, and, second, it absolutely prevents the city sus- 
taining any loss and makes impossible a single dollar's 
increase in taxes. Thus by resorting to this method of 
raising money, each plant or public utility pays for itself 
and in no event can the expense incurred increase the 
burden of taxation or impair in any respect the city's 
borrowing capacity. During the session of the Legisla- 
ture of 1905, The Municipal Ownership League of New 
York City prepared and had introduced a bill empower- 
ing the City of New York to acquire its public utilities 
upon payment of just compensation for property taken 
and prescribing a method by which the money necessary 
to do this could be raised. 

Franchises Should Be Forfeited for Non-User. 

Where franchises have been granted, but have not 
been used or operated by the corporations to which they 
were granted, the duty of the city is clear. It should in 
all cases institute proceedings to bring about the forfeit- 
ure of such franchises. The right of a city to do this 
is unquestioned and was clearly stated by Attorney- 
General Mayer in an opinion granting the application 
of the City of Rochester to bring action for the for- 
feiture of certain old and unused franchises held by street 
railways. In his opinion the Attorney-General said: 

"The railway company having accepted the consent of 
the city was bound to act under it. It could not accept 
franchises given to it and then leave them in abeyance 
indefinitely, for those franchises were granted not ex- 
clusively for the benefit of the railway company but also 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 195 

in the interest of the public. It cannot be that the city 
meant to confer these franchises upon the railway com- 
pany, leaving it optional with the company whether it 
would build its roads in one, or twenty, or fifty years. 

"There is a reciprocal obligation. On the one hand, 
the railway company was seeking rights which bade fair 
to become highly valuable, and on the other hand, the 
city was granting these rights in the expectation of in- 
creased transportation facilities for its inhabitants. I 
think, therefore, that there has been an undoubted 
abandonment of the franchises granted, and that an ac- 
tion will lie to have such abandoment judicially declared. ,, 

A Practical Program. 

The public franchise question and the operation of 
public utilities extends over a broad field and hereto- 
fore those who wished to conserve the city's franchise 
wealth and to promote the public ownership of its public 
utilities have lacked a definite, clean-cut program. Lack 
of knowledge as to existing franchise grants, the in- 
tricacy of the legal questions involved have all tended to 
confused and indefinite views upon the subject. The 
general principles, however, are perfectly clear. New 
York City ought to keep its franchise wealth. Whenever 
the law permits it, and as rapidly as the financial condi- 
tions of the city make it possible, the city should acquire 
for public operation the Gas Plant, the Electric Light 
Plant, and it should construct and operate a comprehen- 
sive system of subway railroads. Thus it would afford 
adequate transportation facilities for the people of the 
city. When its subway railroads are in successful public 
operation, it should acquire all other street railroad fran- 



I96 LEGAL METHODS BY WHICH THE CITY MAY 

chises which it may need. In the meantime it should 
lease such subways for short terms upon adequate com- 
pensation, securing the option to the city to terminate 
them at any time upon payment of an indemnity. It 
should insist upon the construction of pipe galleries with 
all tunnel railroads. 

The city should retain all those franchises which it 
still possesses upon, over or under its streets or other 
public places until such times as it shall be empowered 
to own and operate such of them as the public need re- 
quires shall be operated. 

When franchises expire the city should refuse to renew 
them, or at least it should consent to their renewal only 
for very short periods of time and with the understanding 
that they should be revocable at the option of the city. 

Where public service corporations have violated exist- 
ing laws, whether by continuing in violation of the anti- 
trust laws of the State or by reason of the non-use or 
misuse of their franchises or otherwise, proceedings 
should be at once commenced for the revocation of the 
charters of such companies and the forfeiture of their 
franchise privileges. Every corporation operating in 
the streets should be compelled to show the authority 
under which it operates, and when its claims are of 
doubtful validity it should be compelled to submit them 
to judicial review. 

The amounts now due from the public service cor- 
porations to the city for taxes or licenses should be paid. 
at once and if not paid the property or franchise of such 
corporation should be sold in the same manner in which 
the home of the citizen is sold upon his failure to pay his 
taxes. 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. I97 

All the franchises of the gas companies having ex- 
pired or being about to expire or subject to forfeiture; 
and the city having the right to operate a gas plant, it 
should at once construct and operate a gas plant which 
should supply not only the city but every consumer with- 
in the city's limits. 

Legislation should be sought conferring upon the 
city complete home rule in reference to the acquirement 
and operation of public gas and electric lighting plants 
and street.railways, whether surface, elevated or sub- 
way. 

Legislation should be sought abolishing the present 
Rapid Transit Commission and creating a new commis- 
sion which should be local and representative in char- 
acter. 

Legislation should be sought making it impossible 
to give away or part with any public franchise in per- 
petuity. 

The officials of the city should see to it that under- 
ground New York is preserved for the use of all the 
people and should prevent its exploitation in the inter- 
ests of private corporations. 

The argument for municipal ownership and operation 
of public utilities is unanswerable. The only question 
is as to how much longer the people of New York City 
will be foolish enough to allow these utilities to remain 
in private hands and be operated for private gain. Eu- 
ropean cities have demonstrated the success of public 
ownership and operation, and wherever it has been tried 
in this country, the results have been equally satisfac- 
tory. No good reason exists why New York City should 
not pursue an equally progressive policy. Public opin- 



I98 LEGAL METHODS BY WHICH THE CITY MAY 

ion in New York City is ready for and will support mu- 
nicipal ownership and operation. When the standard 
of municipal ownership was raised in Chicago in April, 
1905, that city, which in the preceding November had 
given President Roosevelt a plurality of 108,000 votes, 
gave to Judge Dunne, the advocate of municipal owner- 
ship, a plurality of 24,000. 

Municipal ownership is coming and it is just as well 
to appreciate that fact. It is coming in New York City. 
All that is needed is for the people of this city to realize 
that they have the power to secure it. They cannot se- 
cure it by showing their servitude to political bosses and 
rings and by worshiping at the shrine of "party regular- 
ity. " They must realize that it is an issue greater than 
any party and a cause that is worth striving for. New 
York City will get no relief from Albany until its people 
have shown that they know what they want and are de- 
termined to get it. Let them demonstrate this fact and 
no matter what party rules at Albany all reasonable de- 
mands of the city will be complied with. The franchise 
wealth of the city should and must be preserved for the 
benefit of the city. Private corporations have refused 
to give adequate public service ; the city must, therefore, 
assume its proper functions and make its public service 
equal to the needs of the people. Public values created 
by all the people have for too long a time been appro- 
priated for private uses. Public values should inure to 
the benefit of the public. Public values are public prop- 
erty for the same reason that private values which are 
created by the labor of the individual are private prop- 
erty. The city's franchise wealth is as much public prop- 
erty as is the City Hall, and officials have no more right 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. I99 

to give it away than they have to give away the City 
Hall. The streets of the City of New York and the 
right to enjoy privileges in them are veritable gold 
mines. The wealth which they contain make the wealth 
that is supposed to be stored away in the mines of the 
Klondike and South Africa seem insignificant. For 
years the public service corporations in New York City 
have stood in the path of progress. Not willing to put 
these franchises and the opportunities which their owner- 
ship secures, to the best use, they have refused either 
to develop them or to permit the city to develop them. 
Public necessity now demands that they shall be utilized. 
The public service corporations, therefore, are deter- 
mined to secure them and thus to reap the profit which 
will come from their operation. 

With subservient public officials in office for the next 
four years and with the present Rapid Transit Commis- 
sion in power and the City of New York tied and ham- 
pered at every turn by restrictive laws which the Legis- 
lature has prescribed, the public service corporations 
feel comparatively sure of securing all this vast franchise 
wealth. 

Nothing short of decisive action at the polls in No- 
vember next can frustrate this plan and preserve this 
franchise wealth to the people of the city. The power 
and the opportunity rest entirely with the people. With- 
out the co-operation of the Mayor and Comptroller and 
the members of the City Board of Estimate and Appor- 
tionment, the public service corporations cannot carry 
out their present scheme to secure the franchises which 
they desire. With the Mayor and Comptroller and 
Board of Estimate and Apportionment determined to 



200 LEGAL METHODS BY WHICH THE CITY MAY 

protect the people's rights in office, not only can this 
vast franchise wealth be preserved to the city, but a gas 
plant can be established and operated for the benefit 
of every consumer in the city ; a municipal, and probably 
a public electric lighting plant can be established ; the 
giving away of franchises in perpetuity or for long terms 
by the Rapid Transit Commission can .be prevented ; 
new subways can be planned with a view to benefit the 
public , rather than with a view to benefit the public ser- 
vice corporations ; and the disposition of these subway 
franchises can be limited to short terms and kept within 
the city's control. If this and nothing more was accom- 
plished, it would be worthy of the effort necessary to 
achieve this result. But much more could be accom- 
plished. Such an endorsement of municipal ownership 
and operation as would be involved in the election of a 
city ticket pledged to this cause, could not and would 
not be ignored by the next Legislature. The city's right 
to Home Rule would be recognized : and it never will be 
recognized until the people of the city demonstrate by 
independent action that they possess the ability and 
capacity to govern themselves. 

It rests, therefore, entirely with the people whether 

they will redeem this city from its present position of 
subjection to the public service corporations, and raise 
it out of the mire of corruption into which it has sunk 
as a result of such control. The petty "graft" which 
was so prevalent in the old days, while not eliminated, 
no longer meets with the approval of the officials of the 
city government. But the alliance between the public 
service corporations and the officials is close and inti- 
mate, and out of this alliance flows not petty "graft," 



ACQUIRE AND OPERATE ITS PUBLIC UTILITIES. 201 

but the great "graft" that is involved in securing the 
franchise wealth of the city. In other words, the "petty 
larceny" of the old days has been succeeded by the 
"grand larceny" methods of the present. 

Questions more important than any which in the his- 
tory of the city of New York have been submitted to its 
people are now pending for solution. Either the people 
will fail to meet the present emergency and the grip of the 
public service corporations will be made secure upon the 
city for generations to come, or they will meet it in the 
spirit of the highest patriotism and progress and the grip 
of the corporations and the spoilsmen and public plun- 
derers will be broken, and the city will enter upon a 
period of development which will make possible in the 
near future the establishment of municipal conditions 
under which comfortable, healthy and happy life will'be 
possible in every home. 

In entering upon this great contest let us not under- 
estimate the difficulties or depreciate the influences op- 
posed to us. The forces opposed to municipal ownership 
are rich, intelligent, powerful, resourceful, cunning and 
unscrupulous. Every attempt will be made through the 
old political parties to see to it that this issue shall not 
even be presented for consideration. We will hear much 
about partisanship and many will be the exhortations 
to respect party regularity. We shall also be invited to 
fight for "good government" and for many other causes 
which will be referred to only to divert public attention 
from the question of municipal ownership and operation 
of public utilities. 

When the issue of municipal ownership and operation 
shall be squarely presented opponents will resort to mis- 



202 LEGAL METHODS BY WHICH THE CITY MAY 

representation. The dictionary of abuse and vilification 
„ will be frequently consulted, and those who are deter- 
mined upon the conservative policy of securing public 
property for public uses and having the city perform 
its proper governmental functions will be charged with 
leading an assault upon property rights. Newspapers 
owned by the same interests that control the public ser- 
vice corporations will defend the interests of their own- 
ers. The defense will not be made by arguments against 
municipal ownership and operation of public utilities, 
because there is no good argument which can be urged 
against this policy. Misrepresentation of facts, vilifica- 
tion and personal abuse of opponents and futile attempts 
to convince the people that "the time is not ripe," and 
that different conditions prevail among the people of 
this city from those which exist where municipal owner- 
ship and operation has become a demonstrated success, 
will constitute the line of defense. All of these argu- 
ments in their last analysis rest upon the belief that the 
people are not fit to enter upon this new field of 
municipal endeavor. Such an argument presupposes 
the incapacity of the people to govern themselves 
and assumes the capacity and honesty of the few to gov- 
ern the many. Such an argument cannot be endorsed 
in this city, or in any other part of this country where 
American principles are still kept alive and cherished. 

The difficulties in the way of success afford no ground 
for discouragement. Those who fight for municipal 
ownership and operation of public utilities fight for the 
right. They support a cause which will win. It is inev- 
itable. All the forces of progress are making for it and 
its triumph is assured. 



LE '08 



MUNICIPAL OWNERSHIP 



AND OPERATION 



OF 



PUBLIC UTILITIES 



IN 



NEW YORK CITY 



BY 



SAMUEL SEABURY, 

One of the Justices of the City Court of the City of New York 



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